Working capital is the cash a business needs to fund its day-to-day operations between paying suppliers and collecting from customers. The accounting definition is current assets minus current liabilities. The practical definition is: the money locked up in your business that you cannot use for anything else.
The major components of working capital are accounts receivable (cash you are owed by customers), inventory (cash converted to product, sitting on shelves), and accounts payable (cash you owe suppliers). A business with 60-day customer payment terms and 30-day supplier terms is permanently financing 30 days of operations out of its own pocket. Multiply by daily revenue and you have a hard number for how much capital is tied up in trade.
Working capital management is the discipline of reducing that number — and the cash cost it represents — without breaking customer or supplier relationships. The standard levers are: shortening customer payment terms (or enforcing existing ones), extending supplier payment terms (carefully), reducing inventory days (better forecasting, smaller batch sizes), and reducing the time from invoice to cash collection (faster billing, better collections process).
For growing businesses, working capital is often the silent killer. Revenue is up, profits look fine on the income statement, but cash is going backward because every new sale ties up more cash in receivables and inventory before any cash comes back. Companies have gone bankrupt while profitable for exactly this reason.
For SMEs in Egypt and the GCC, working capital is especially important because external financing — short-term lines of credit, factoring — is more expensive and harder to access than in mature markets. Self-funding working capital is the default, which means every operational decision (customer terms, inventory levels, supplier negotiations) is also a treasury decision.
A fractional CFO or outsourced finance team will typically build a working capital model in the first month of an engagement and track it monthly. The trend in working capital days is one of the cleanest signals of operational health.