Ask why a small business shut down and you will usually hear "paisa fas gaya" — money got stuck. Stuck in unsold stock, in unpaid invoices, in advances to suppliers. That stuck money is working capital, and managing it is the daily survival skill of business. This guide explains the cycle in plain terms and gives you levers to free cash without borrowing a rupee.
The cash conversion cycle
Working capital lives in a loop: you pay suppliers, hold inventory, sell, and wait for customers to pay. The cash conversion cycle measures the days your money spends trapped in that loop: inventory days + receivable days − payable days. A kirana buying on 15-day credit, holding 20 days of stock and selling cash has a cycle of 5 days — nearly self-funding. A garment maker holding 60 days of stock and giving 45-day credit while paying suppliers in 15 runs a 90-day cycle: every rupee of monthly sales needs three rupees of capital standing behind it.
Shrink receivables first
- Invoice the same day as delivery — delayed invoicing is self-inflicted credit
- State credit terms on every invoice and quote; silence becomes 60 days by default
- Take advances: 30–50% on orders, 100% on customised work
- Offer small cash discounts (1–2%) for early payment where margins allow — cheaper than an overdraft
- Chase systematically: reminder before due date, call on due date, escalate at +7 days; consistency beats aggression
- Know the MSME 45-day rule: registered MSEs are legally entitled to payment within 45 days, with interest on delays — quote your Udyam number on invoices
Right-size inventory
Inventory is cash wearing a costume. Classify stock ABC: the 20% of items giving 80% of sales get availability priority; slow movers get minimum stocks or made-to-order treatment. Set reorder points instead of buying on instinct or on a supplier's "scheme". Count monthly — shrinkage and dead stock hide in uncounted godowns. A quarterly clearance of dead stock at cost is not a loss; it is releasing hostage cash.
Stretch payables — respectfully
Supplier credit is the cheapest working capital there is, but stretch it by negotiation, not by default. Ask for terms in exchange for volume commitments or consistency. Never stretch statutory payments — GST, TDS, PF, ESI — the interest and penalties outrun any bank rate, and never delay MSME suppliers beyond 45 days, which now carries tax consequences under Section 43B(h).
If receivables + inventory are growing faster than sales, cash is silently leaking — investigate that month, not at year-end.
Funding the gap that remains
- Cash credit (CC) / overdraft (OD): the standard bank lines against stock and receivables
- Invoice discounting and TReDS: turn B2B invoices into immediate cash
- Mudra and CGTMSE-backed loans: collateral-light options for smaller units
- Supplier/dealer finance programmes of larger companies you trade with
Borrow against a computed cycle, not a hopeful number: (monthly purchases + expenses) × cycle days ÷ 30, minus supplier credit. Banks respect a founder who arrives with that arithmetic.
How Aidwish helps
Aidwish sets up working-capital MIS for clients — cycle tracking, ageing reports and reorder disciplines — and prepares CMA data and applications for CC/OD limits and MSME-scheme funding when a facility is genuinely needed.