In this article, we cover:
What working capital is and why it matters for growing suppliers
The difference between working capital and cash flow
Four common financial products that help improve business liquidity
Every growing business reaches a point where sales are increasing, customers are placing larger orders, and new opportunities seem to appear every week. On paper, everything looks like it's headed in the right direction.
Ironically, that's often when cash becomes the tightest. As orders grow, so do inventory purchases, payroll, freight costs, and supplier invoices, while customer payments may still be weeks or months away. Suppliers need to be paid. Payroll is due. Inventory has to be replenished before the next purchase orders arrive. Meanwhile, it seems the largest retail customer isn't going to pay its invoice for another 60 days.
The business is growing and turning a profit, yet the business’ actual bank account feels like it's perpetually running on empty. This is one of the most common financial challenges businesses face as they grow, and it's often tied to one thing: working capital.
It's a challenge shared by companies of every size. According to The Hackett Group's 2025 U.S. Working Capital Survey, the 1,000 largest publicly traded nonfinancial U.S. companies still have $1.7 trillion tied up in excess working capital, including $600 billion in accounts receivable alone. The findings highlight how inventory, receivables, and payment timing continue to constrain liquidity, even for large, established organizations.
Working capital is the money available to keep your business operating between the time you pay your expenses and the time your customers pay you. When managed well, it helps businesses purchase inventory, fulfill retailer orders, cover operating expenses, and invest in growth without putting unnecessary pressure on cash flow.
For suppliers, working capital becomes even more critical as retail relationships expand. Larger retailers often negotiate longer payment terms, require higher inventory levels, and expect suppliers to scale quickly during promotions or seasonal demand. Those opportunities can increase revenue, but they can also put serious pressure on available cash.
Understanding how working capital works and knowing which financial tools are available when cash gets tight can help businesses keep growing without sacrificing financial stability.
Related Reading: Payment Terms and How They Affect Cash Flow
How Working Capital Supports Day-to-Day Operations
Working capital measures the short-term financial resources a business has available to operate. It's the difference between current assets and current liabilities. Think of it as the money that keeps businesses moving between purchases, production, shipping, invoicing, and payment.
Current assets are resources that can typically be converted to cash within one year:
Cash: money immediately available in your bank account
Accounts receivable: payments customers owe for products already delivered
Inventory: raw materials, finished goods, or products available for sale
Current liabilities are financial obligations due within the next year, including:
Accounts payable
Short-term loans
Payroll obligations
Accrued operating expenses
The formula is: current assets − current liabilities = working capital
Positive working capital generally means a business has enough liquidity to pay bills, purchase inventory, and keep operating. Negative working capital can signal trouble meeting short-term obligations without additional financing or improved cash flow management.
Working Capital vs. Cash Flow
Working capital and cash flow are closely related, but they aren't the same thing.
Working capital is a snapshot of your company's short-term financial position at a specific moment. Cash flow measures how money moves into and out of your business over time.
A company can have healthy working capital while still experiencing cash flow challenges. Consider a supplier that has recently landed several large retail accounts. Sales are up, production is ramping, and inventory is growing to support bigger purchase orders — but retailers are paying on 60- or 90-day terms.
On paper, the business looks stronger than ever. In reality, most of its money is tied up in products sitting in warehouses or invoices waiting to be paid. This is why many growing businesses ask: "If sales are up, why does it always feel like we're short on cash?"
Profit and cash are not the same thing. A business can report strong profits while still struggling to replenish inventory, or cover payroll because those profits haven't yet converted into available cash.
Managing the gap between when cash leaves the business and when it returns is one of the primary goals of working capital management.
Why Growing Retail Suppliers Still Run Short on Cash
In many cases, working capital challenges are the natural result of how retail supply chains operate.
Consider what happens when a supplier lands a new retail customer. Inventory often has to be purchased weeks before products ship. Manufacturing, labor, packaging, freight, and compliance costs are paid upfront. Once the order is delivered, the supplier sends an invoice but payment may not arrive for 60 or even 90 days.
During that time, cash remains tied up in inventory and unpaid invoices while new purchase orders continue to arrive.
Financial professionals sometimes refer to this as the cash conversion cycle: the time between spending money to produce goods and collecting payment from customers. The longer that cycle lasts, the more working capital a business needs to keep operating.
For retail suppliers, several factors can extend that cycle:
Longer retailer payment terms
Higher inventory requirements ahead of promotions or seasonal demand
Unexpected retailer deductions or chargebacks that reduce incoming cash
Ongoing investments in production, freight, and labor before payment is received
This is also why positive working capital doesn't always mean a business has cash readily available. A company may appear financially healthy on paper while much of its money is tied up in inventory sitting in warehouses or invoices that haven't yet been paid.
Understanding where cash becomes tied up helps businesses choose the right solution, whether that's improving inventory planning, negotiating payment terms, recovering deductions, or using financing products to bridge temporary cash flow gaps.
How Do Businesses Improve Working Capital?
Healthy working capital management focuses on shortening the time between spending money and getting it back. Businesses often improve working capital by:
Negotiating longer payment terms with suppliers through trade credit
Encouraging faster customer payments
Reducing excess inventory without creating stockouts
Recovering invalid retailer deductions that reduce available cash
Using financing products strategically during growth or seasonal demand
No single approach works for every business. The right strategy depends on your industry, customer relationships, inventory requirements, and growth plans.
Related Resource: Understanding Retailer Deductions, Chargebacks, and Fines
Working Capital Financial Products
When operational improvements alone aren't enough, working capital financial products can provide additional flexibility. The four most common options each solve a different cash flow challenge.
Line of Credit
A business line of credit gives you access to a set amount of funds to borrow as needed rather than all at once. Instead of taking out a full loan upfront, you withdraw only what you need and pay interest on that amount. This makes lines of credit well-suited for managing short-term or unexpected expenses, such as covering a gap between customer payments, handling a temporary inventory increase, or smoothing out seasonal fluctuations.
Short-term Loan
A short-term loan provides a lump sum upfront with a fixed repayment schedule. These work best when you know exactly how much funding you need for a planned investment, like purchasing inventory ahead of a seasonal promotion, investing in equipment, or expanding warehouse capacity. Because repayment terms are set in advance, they offer predictability for projects with defined costs.
Trade Credit
Trade credit is one of the oldest forms of business financing. Rather than requiring immediate payment, suppliers allow customers to purchase goods and pay later under agreed terms — net 30, 60, or 90, for example. For growing businesses, negotiating favorable trade credit terms can meaningfully improve working capital without taking on additional debt.
Invoice financing
Invoice financing allows businesses to access funds tied up in unpaid customer invoices instead of waiting weeks (or months) for payment. Financing is secured against invoices already issued, not future sales projections.
For example, imagine you're a supplier that's shipped a larger order to a retailer on 90-day payment terms. You've already paid for manufacturing, labor, packaging, and freight, but payment is three months away. Invoice financing lets you unlock a portion of that invoice value now, giving you the liquidity to keep operating and fulfill new orders without waiting on the retailer's payment cycle.
Related Reading: What is Invoice Financing and How Does It Work?
Choosing the Right Working Capital Solution
The best option depends on why your business needs additional working capital.
Managing occasional cash flow fluctuations? | A line of credit offers the flexibility you need. |
Making a planned investment in capacity or equipment? | A short-term loan provides predictable financing. |
Looking to preserve cash when buying from suppliers? | Trade credit can help without adding new debt. |
Most of your cash tied up in unpaid invoices? | Invoice financing may get you access to funds sooner. |
Financing products work best alongside strong operational habits. Improving inventory management, forecasting demand accurately, invoicing promptly, and resolving retailer deductions quickly all strengthen working capital over time. Ultimately, working capital management is about giving your business the flexibility to operate, respond to new opportunities, and grow even when payments don't align with expenses.
Related Reading: How Top Suppliers Overcome Common Cash Flow Challenges
Working Capital Frequently Asked Questions
What is working capital?
Working capital is the difference between a company's current assets and current liabilities. It measures the short-term financial resources available to fund everyday operations, pay upcoming expenses, purchase inventory, and support business growth.
How do you calculate working capital?
Working Capital = Current Assets − Current Liabilities. Current assets typically include cash, accounts receivable, and inventory. Current liabilities include accounts payable, accrued expenses, and short-term debt.
What is invoice financing?
Invoice financing lets businesses receive funding based on unpaid customer invoices instead of waiting for payment, improving cash flow by unlocking money that's already been earned.
What's the difference between a line of credit and a short-term loan?
A line of credit provides ongoing, flexible access to funds; a short-term loan delivers a fixed amount upfront with a set repayment schedule. Lines of credit suit changing cash flow needs; short-term loans work better for planned purchases.
How SPS Commerce Can Help
Managing working capital becomes harder as retail operations grow. Larger purchase orders, longer payment terms, and higher inventory requirements all increase the cash tied up in day-to-day operations.
To help address these challenges, SPS Commerce offers Invoice Financing for eligible U.S.-based suppliers. The solution gives businesses access to funds sitting in outstanding invoices rather than waiting on customer payments. That added liquidity helps suppliers keep purchasing inventory, covering operating expenses, and fulfilling retailer orders — all while maintaining healthy cash flow.
Because the solution connects directly to SPS Commerce invoicing workflows, eligible invoices move into the financing process with fewer manual steps, less time on paperwork, and more time spent growing your business.