The money a business needs on hand to operate day to day, as opposed to money tied up in buildings or trucks.
In fuel, working capital is the cash you have tied up just to do business. It sits in fuel you have bought but not yet sold, and in invoices customers have not yet paid.
The part that catches people is that it rises and falls with the price of fuel. When the rack price jumps, the same gallons cost more, so both your fuel and your unpaid invoices swell, and you need more cash to carry the very same business.
That is why a price spike can squeeze a perfectly healthy company. Nothing is wrong with it. It simply has more money locked up in the same fuel. A lender who understands this sets up a credit line that flexes with the price.
In useWhen fuel prices doubled, the jobber needed far more working capital to carry the same gallons, even though it was selling no more fuel.
Where the word comes from
Working capital joins capital, money put to work in a business, with working, the part actively in use rather than locked away. It is long-standing accounting language for the money it takes to keep a business running.
See also Credit and collections, Margin leak