Working capital cycle:
working capital is the money needed for the day-to-day running costs of a business. It is also known as the net current assets of a business.
Remember that current assets are the liquid assets of a business (cash, debtors, stock) and current liabilities are bills that need to be paid in the short term (creditors and overdrafts). To have working capital, businesses need to ensure that their current assets exceed their current liabilities.
If the opposite happens, the company may become illiquid, which means that it is not able to pay its short-term debts. This is a serious crisis for a company. If this continues, it might have to liquidate its capital assets and, consequently, lead to closure.
In order to avoid this, it's key to have working capital management and to have a clear and realistic working capital cycle.