How to Explain Working Capital in English

Working capital is a common topic in corporate banking because growth can increase the amount of cash tied up in day-to-day operations. The communication challenge is to explain where the cash is tied up, why it changed and how the funding need will develop.

Explain the requirement

• “The business requires additional working capital to support growth.”
• “The funding need is seasonal rather than permanent.”
• “The working-capital requirement has increased as sales have grown.”
• “The company is requesting a larger revolving facility to provide additional flexibility.”

Talk about receivables

• “Receivables increased faster than revenue.”
• “Customer collection has slowed.”
• “Receivable days increased from 48 to 61 days.”
• “The company is taking steps to improve collections.”
• “A large portion of receivables relates to investment-grade customers.”

Talk about inventory

• “Inventory increased ahead of the peak sales period.”
• “The build-up is expected to reverse in Q1.”
• “Inventory days remain above the historical average.”
• “The company is holding additional safety stock.”

Talk about payables

• “Supplier payment terms have remained broadly stable.”
• “The business has benefited from longer payment terms.”
• “Payables increased in line with the higher purchasing volume.”

Explain the cash-flow effect

• “The working-capital build resulted in a cash outflow.”
• “The company released cash from working capital in the second half.”
• “Higher receivables reduced operating cash flow.”
• “The effect is expected to be temporary.”

Link working capital to the proposed facility

• “The revolving facility is intended to finance seasonal working-capital peaks.”
• “The requested increase is consistent with the larger receivables balance.”
• “Utilisation is expected to reduce after the peak trading period.”
• “The structure provides flexibility without creating long-term debt for a short-term need.”

A concise banking explanation

“The borrower’s working-capital requirement has increased because revenue grew by 15% and customer payment terms have lengthened. Receivable days moved from 52 to 64 days, while inventory also increased ahead of the peak season. As a result, operating cash flow weakened despite higher EBITDA. The company is requesting an increase in its revolving facility to fund the temporary build, with utilisation expected to decline in Q1 as receivables are collected.”

Common language distinctions

• Working-capital requirement — the operational funding need.
• Working-capital build — more cash becoming tied up.
• Working-capital release — cash being freed.
• Seasonal — recurring at a particular time or cycle.
• Permanent — a funding need that does not naturally unwind.

A clear working-capital explanation follows the operating cycle: sales create receivables, production may require inventory, supplier terms create payables, and the net movement affects cash and financing.