Guides · Bookkeeping
Working capital basics
Working capital is the money a business needs to keep running from day to day — the gap between its short-term assets and its short-term dues. It is why a profitable business can still run short of cash.
What working capital is
Working capital is broadly what a business has tied up in its near-term operations: money owed to it and stock it holds, set against money it owes in the near term. When receivables and stock are high but payables fall due sooner, working capital is stretched.
It is the cushion — or the squeeze — between money coming in and money going out over the short term.
Why profit is not the same as cash
A business can be profitable on paper and still short of cash, because profit counts sales made while cash counts sales collected. If customers pay slowly and suppliers must be paid quickly, the profit sits in receivables while the bank runs dry.
Managing working capital is largely about the timing gap: collecting sooner, and not letting payables and receivables drift out of step.
How Lekha keeps the gap visible
Lekha shows receivables and payables side by side with a net-position view, so the gap between what you are owed and what you owe is visible rather than a surprise at month-end.
Lekha records what your documents say and tracks the money on both sides — what you owe and what you are owed. It records and tracks; it does not replace your accountant.
Questions
- What is working capital?
- Broadly, the money a business has tied up in near-term operations — receivables and stock set against near-term dues — the cushion between money coming in and going out.
- Why can a profitable business run short of cash?
- Because profit counts sales made while cash counts sales collected. Slow-paying customers and fast-due suppliers leave the profit stuck in receivables.
- How do I manage working capital?
- Largely by managing the timing gap — collecting sooner and keeping payables and receivables from drifting out of step. A net-position view helps.