Working capital impacts how businesses stay liquid, fund growth, and guide the uneven timing of cash in and cash out. In Australia’s economy—which is marked by rising costs, late payments, and seasonal demand—understanding working capital is a competitive advantage.

Below, we’ll explain what working capital is, how it’s calculated, and how different industries in Australia experience it. We’ll also offer strategies businesses can use to keep cash flowing smoothly and sustainably.

What’s in this article?

• What is working capital?
  
• How do Australian companies calculate working capital needs?
  
• Why is working capital important for Australian businesses?
  
• What factors influence working capital requirements across different Australian industries?
  
• What challenges do Australian businesses face in maintaining healthy working capital?
  
• How do financing options support working capital management in Australia?
  
• How can businesses optimize their operations to improve working capital?
  
• How Stripe Capital can help
  

What is working capital?

Working capital is the money a business has available to pay suppliers, cover payroll, keep inventory moving, and absorb small unexpected costs.

People sometimes confuse working capital with cash flow, but these are distinct concepts that answer different questions. Working capital is a snapshot that tells you if you have enough accessible resources today. Cash flow tracks money moving in and out over time, and tells you whether you are bringing in cash fast enough to support your spending.

A profitable business can still have liquidity issues if customers pay slowly or inventory sits too long. That’s why companies also watch metrics such as the current ratio (i.e., current assets divided by current liabilities) to see how comfortably they can meet short-term obligations. Ratios below 1.0 signal stress and usually prompt a closer look at where cash is getting stuck.

How do Australian companies calculate working capital needs?

The calculation for working capital needs is current assets minus current liabilities. Current assets are the things you can turn into cash within a year, such as the money in your accounts, unpaid customer invoices, and inventory. Current liabilities are the bills and short-term debts due in that same period.

Businesses also map out their cash conversion cycle, which traces the path from paying suppliers to holding or producing inventory to finally invoicing customers and collecting payment. A cycle might look like this: pay suppliers in 30 days, turn inventory in 60 days, collect payment in 45 days. That tells you how long cash is unavailable before it returns to your account.

Companies forecast working capital on a rolling basis, often using short-term cash flow models that flag strains on liquidity early. In 2025, 67% of insolvent small businesses hadn’t been using any formal cash flow forecasting, which means they probably weren’t tracking the needs that eventually contributed to their insolvency.

Why is working capital important for Australian businesses?

Working capital keeps Australian businesses steady when cash doesn’t show up on the same schedule as expenses.

Here’s how it works:

• It keeps operations moving: Working capital fills the gap between when a business pays expenses (e.g., suppliers, staff, overhead costs), and when they receive customer payments. It keeps the business from stalling when revenue arrives later than the costs that produced it.

• It protects against economic pressure: Inflation drives up input costs, and higher interest rates make financing more expensive. Strong working capital gives businesses a cushion, so they can adjust instead of reacting in panic each time external conditions shift.

• It covers the strain of late payments: Australia’s slow-payment culture puts real strain on liquidity, with only about 3 in 10 large companies paying small suppliers within 30 days, and some pushing payments past 120 days. Even profitable businesses can feel the squeeze when receivables pile up.

• It fuels new opportunities: With sufficient working capital, companies can stock ahead of peak seasons, take on contracts with upfront costs, or invest in equipment or capacity when the timing is right. This matters in the Australian market, where nearly 80% of small businesses experienced cash flow difficulties in 2024.

What factors influence working capital requirements across different Australian industries?

Working capital needs vary widely across Australia’s industries because cash moves differently in each operating model.

Here’s a breakdown for different industries:

• Retail and wholesale: These businesses experience strains on working capital due to inventory because they need to buy stock ahead of demand. Seasonal peaks—such as Christmas or back-to-school periods—push inventory purchases higher, and slow-moving stock can trap cash on the shelf longer than planned.

• Manufacturing and construction: Long project cycles and high upfront costs mean cash often goes out much earlier than it comes back in. Builders and manufacturers routinely pay for materials, labor, and subcontractors before clients settle invoices, which raises their working capital requirement.

• Professional services and agencies: With little to no inventory, the main working capital pressure for these businesses sits in accounts receivable (AR). Project-based billing and corporate clients that pay on extended terms can stretch cash flow—especially when payroll is due weekly or fortnightly, regardless of when invoices clear.

• Seasonal industries such as tourism and agriculture: Cash flow swings throughout the year, with heavy upfront spending to prepare for peak seasons and long quiet stretches that require a reserve to stay afloat. A tourism operator or farm can spend months investing in staff, supplies, or production before earning a dollar back.

• Mining and resources: These companies deal with long extraction and shipping cycles, which delay conversion of production costs into cash. Service providers within the mining supply chain often wait extended periods for payment from large operators, increasing their need for working capital.

• Businesses dependent on slow-paying large customers: Across sectors, suppliers to major enterprises face delayed payment cycles, sometimes over 120 days, which forces them to shoulder the financial load. This dynamic often means small and medium-sized enterprises (SMEs) need more working capital than their revenue profile alone would suggest.

What challenges do Australian businesses face in maintaining healthy working capital?

Even well-run businesses in Australia can feel their working capital tighten faster than expected.

Here are the external forces and everyday habits that distort the timing of cash in and cash out:

• Late payments from customers: A slow-payment landscape puts real strain on liquidity, with many small businesses waiting far beyond 30-day terms.

• Rising costs and economic volatility: Inflation pushes up the price of inputs while higher interest rates make borrowing more expensive, which means cash costs more to access and gets tied up sooner.

• Limited access to traditional financing: Many SMEs struggle to qualify for bank loans because they lack collateral or long credit histories. That gap often leads owners to use personal savings or delay paying themselves just to keep operations moving.

• Internal blind spots and weak forecasting: Missed invoicing, slow collections follow-up, over-ordering inventory, or paying bills earlier than necessary all chip away at available cash. Businesses without consistent cash flow forecasting often discover problems only after those problems have become significant.

How do financing options support working capital management in Australia?

Australian businesses use a mix of traditional and newer funding options to even out shortfalls, cover upfront costs, and keep their cash conversion cycles moving.

Here are the financing options for businesses:

• Lines of credit: These options let businesses draw on funds up to a certain limit, as needed, and then repay when cash comes in. They’re useful for short-term timing gaps, though access often depends on strong credit history or collateral.

• Short-term business loans and trade finance: Term loans and supplier-focused funding give companies the ability to pay for inventory or materials ahead of sales. Importers and manufacturers often use these loans to cover the period between purchasing stock and converting it into revenue.

• Invoice financing: When they borrow against or sell outstanding invoices, businesses turn receivables into near-immediate cash. This is especially valuable in sectors where 30- to 90-day payment terms are the norm, which helps prevent solid businesses from being dragged down by slow collection cycles.

• Supplier terms and trade credit: Negotiating longer payment terms effectively creates built-in financing. Even an extra week or two to pay bills can reduce working capital pressure without forcing a business to take on formal debt.

• Government and export-support programs: Export Finance Australia (EFA) provides working capital loans and guarantees to help businesses fulfil international orders. These programs are often important for companies with large pay-ahead production costs.

• Fintech and revenue-based financing: Tools such as Stripe Capital provide an alternative for companies that can’t or don’t want to pursue traditional loans. Repayments are tied to a share of daily sales and keep cash flow attuned to the rhythm of the business.

How can businesses optimize their operations to improve working capital?

Working capital tends to improve fastest when businesses address the places cash is getting stuck.

Here’s how to move money through a business more quickly:

• Build real cash flow visibility: A rolling forecast, updated weekly, helps teams see when cash gaps or surpluses are coming. With that visibility, businesses can adjust spending, speed up invoicing, or line up financing before pressure hits.

• Manage inventory with intention: Excess stock constricts cash flow. Sharper demand forecasting, smaller but more frequent orders, and clearing slow-moving items help keep inventory neck and neck with real sales patterns. In industries with perishables, practices such as first-in, first-out (FIFO) prevent spoilage from consuming working capital.

• Accelerate receivables: Prompt, accurate invoicing sets the pace, but follow-up is what protects it. Consistent reminders, straightforward payment terms, and multiple payment options—especially online payments that let customers pay immediately—can shrink the time between delivering work and seeing cash in the bank.

• Make payables work smarter: Paying too early drains liquidity, but chronically paying late strains relationships. Using the full term available, renegotiating extended terms with main suppliers, and taking early-payment discounts when they provide outsized value all strengthen working capital without sacrificing trust.

• Maintain a cash buffer: Even small reserves reduce reliance on high-cost, last-minute financing and create room to handle unexpected expenses or revenue delays.

• Use financing strategically: Short-term tools, such as lines of credit or revenue-based financing, work effectively when used proactively instead of reactively. When financing is planned, it supports healthier cycles of spending, collecting, and reinvesting.

How Stripe Capital can help

Stripe Capital offers revenue-based financing solutions to help your business access the funds it needs to grow.

Capital can help you:

• Access growth capital faster: Get approved for a loan or merchant cash advance in minutes—without the lengthy application process and collateral requirements of traditional bank loans.

• Align financing with your revenue: Capital’s revenue-based structure means you pay a fixed percentage of your daily sales, so payments scale with your business performance. If the amount that you pay through sales doesn’t meet the minimum due each payment period, Capital will automatically debit the remaining amount from your bank account at the end of the period.

• Expand with confidence: Fund growth initiatives such as marketing campaigns, new hires, inventory expansion, and more—without diluting your equity or personal assets.

• Use Stripe’s expertise: Capital provides custom financing solutions informed by Stripe’s deep expertise and payments data.

Learn more about how Stripe Capital can fuel your business growth, or get started today.