What is working capital finance and how can it improve cashflow?

December 15, 2023

BSc FCA, Partner


What is working capital finance and how can it improve cashflow?

If your business is struggling with working capital or you want to seize a growth opportunity for your business but don’t have sufficient working capital, then working capital finance could be a solution for your business.

Working capital is the money you need to maintain day to day operations and is vital for a healthy business. Working capital is the amount of cash a business can safely spend. It’s commonly defined as current assets minus current liabilities.

Sometimes businesses find themselves without enough working capital. This may be a temporary cash flow shortage, or it may be there is a short-term opportunity that you didn’t predict and need to secure financing for. In these cases, working capital finance could be an option for you.

In this blog, we look at what working capital finance is available and the benefits of them to your business.


What is Working Capital Finance?

Working capital finance solutions offer businesses the opportunity to improve cash flow. The world of commercial finance and asset-based lending (ABL) is complex and expansive with products, terminology and contractual interpretation varying from lender-to-lender.

There are several types of working capital finance and eligibility may depend on the sector, your business lifecycle state and your business model.


What are the benefits of working capital finance?

The benefits of arranging Working Capital finance are:

  • Up to 90% of outstanding invoice value can be advanced within 24 hours.
  • Flexible lending – funding increases in line with your growth (UK and Export).
  • Confidentiality – lenders can offer a completely confidential service – your customers need not know you have a facility in place.
  • Lenders allow you to manage your funding at all times.
  • Sector-specific finance is often available.
  • Structured ABL – funding for management buy-outs/management buy-ins.
  • Trade Finance & Supply Chain Finance Solutions.


What types of working capital finance are available?

Specialists in this area can advise on:

  • Invoice finance – an effective way of quickly accessing a proportion of the value (up to 90%) of your invoices. Invoice financing means a business ‘sells’ its unpaid invoices to the lender in return for accessing cash at the point products and services are sold. Specific sector-based offerings are available, as is the ability to arrange finance for selected invoices only.
  • Structured ABL – generate a higher level of funding by unlocking the maximum value tied up in the combined assets within your business, including Debtors, Inventory, Plant & Machinery and Property. Additional forms of funding can be structured in addition to this, such as top up loans to drive growth.
  • Trade Finance – supply chain finance with various options, enabling the purchasing of goods from overseas where you are otherwise unable to obtain credit from suppliers.
  • Working capital loans – offered as secured and unsecured loans. For an unsecured working capital loan, a personal guarantee is required. A secured loan will require collateral.


Not all the above are suitable for all businesses, so you should consider all options and seek professional advice where necessary.


How does working capital finance work?

For secured finance, you will have to provide financial details as you will need to provide details on the company’s current assets on your balance sheet as security for the loan. This could be property, stock, equipment, debtors or intellectual property.

For unsecured funding, the lender may look at turnover history, credit rating and may look at your personal credit score and request a personal guarantee.


Financial information required to get working capital finance

Management accounts and projections

To obtain working capital financing, you typically need to ensure your management accounts are up to date, you make available current detailed lists of debtors and creditors. You might also need up to date projections before a working capital finance provider will consider your application.

Therefore, ensuring that that you have reliable and accurate management accounts, prepared on a monthly basis, will ensure that you have the core information required. We would recommend this is in place before you start to engage working capital providers to ensure you present your business in the best possible light as a well-managed, highly organised and financially viable business.

Using professional advisors, such as Barnes Roffe, who have extensive experience on management accounting systems, procedures and controls, will ensure your management accounts are presented as required, and to ensure their robustness when finance providers raise specific queries.

If financial projections are required, we would also recommend that these are reviewed by a professional advisor, such as Barnes Roffe, to ensure their credibility.

We very often see that once high-quality management accounts and financial projections are prepared, that this can assist greatly in deciding which working capital finance products may be suitable for a business’ specific cashflow needs, and which are not.



In an ever-changing business landscape, managing the financial health of your company can sometimes be difficult. Working capital management is crucial to ensure you run your company with a healthy working capital ratio. However, there are times when your business requires extra funding, but a long-term business loan just may not be right for this.

Working capital financing allows you to borrow money to boost the working capital available to a business. It can be an option to resolve short term cash flow issues or take up business growth opportunities.

This type of finance can be a great line of credit and used to free up cash to pay short term liabilities, keep your business afloat or grow the business. Repayments will be made over the short or medium term and can be an alternative to longer term traditional bank loans.

Contact us today if you require any advice or assistance.