Working Capital and Overdraft Calculator — Value Lending
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Business cash flow

Working Capital and Overdraft Calculator

A business that is profitable can still run short of cash, because customers pay later than suppliers and wages fall due. This calculator works out how much cash the gap ties up, suggests a facility size, and shows which kind of finance covers each part of it.

Start from a business like yours

Each preset fills the figures below with a typical pattern; change any number to match your own. The notes under each box say where to find the figure.

Your business

Your average month's invoicing or takings. Last year's turnover from the BAS, divided by twelve, is close enough.
What is left of each sale after materials, stock and subcontractors, before wages and overheads. A tradie is often 30–45%; a café 60–70%; a wholesaler 20–30%.
Everything that falls due whether or not you sell anything: wages, rent, insurance, vehicle and loan repayments, software, phones.
From sending the invoice to the money landing. "30-day terms" usually means 40–50 days in practice. Takings at the till: 1.
Your trade account terms, or how long you actually take. Paying on card or cash as you go: 1.
How long materials or stock sit before they become a sale, or how far a job runs before you can invoice it. A service business with no stock: 0.
Public liability, vehicles, workers compensation, business pack, professional indemnity, added together for the year.
A vehicle, a machine, a fit-out. Leave at 0 if nothing is planned.
A guess is fine. Growth ties up more cash, because the invoices grow before the payments do.
Cash conversion cycle—days between paying and being paid
Cash tied up in the cycle—debtors + stock − creditors
Facility size to cover it—with a buffer for a slow month and growth
Lumpy costs this year—premiums and equipment, better funded separately
——

The facility size is the cash tied up in the cycle, plus one slow month of fixed costs, plus the growth in the cycle next year. It is a starting point for the conversation, not a lender's assessment; lenders size an overdraft on turnover, conduct and security, and invoice finance on the quality of the debtors.

Which line of finance covers which part

NeedAmountFitsIndicative annual cost

Costs are indicative mid-points of what each facility type has recently cost a trading business with clean conduct: overdraft and line of credit around 9–12% on the drawn balance plus a line fee; invoice finance 1–3% of invoice value a month depending on days outstanding; insurance premium funding 6–10% annualised over ten monthly instalments; equipment finance 7–11%; unsecured business loans 15–30% annualised once the factor rate is converted. Not offers, and they move with the cash rate.

The idea in plain words

Say you run an electrical business turning over $120,000 a month. You buy the materials and pay the apprentices this month, and the builder pays your invoice in about 45 days. By the time that money arrives, you have already paid for next month's materials and wages too. The money you are waiting on, roughly $180,000 at any moment, is the cash your business has to find from somewhere while it waits. That "somewhere" is the facility, and this page sizes it.

Three things make the gap bigger: slow-paying customers, stock or half-finished jobs sitting unbilled, and growth. One thing makes it smaller: taking longer to pay your own suppliers, within terms. Everything else, premiums, vehicles, the BAS, is a separate question with its own kind of finance.

How the gap is worked out

Debtors. Sales per day multiplied by the days customers take to pay is the money always owed to you. At $120,000 a month and 45 days, about $180,000 sits in invoices at any time.

Stock and work in progress. Cost of sales per day multiplied by the days held: materials bought, jobs part-done, goods on the shelf.

Creditors. Cost of sales per day multiplied by the days you take to pay suppliers, which funds part of the gap for you. Longer supplier terms shrink the facility you need; a trade account or trade finance does the same.

The buffer. One month of wages and fixed costs covers a slow month or a late payer, and the growth figure adds what next year's larger cycle will tie up. Growing businesses run short of cash more often than shrinking ones, because the debtors grow before the collections do.

What does not belong in an overdraft

The words lenders use

OverdraftA limit on the business account you can go below zero to, paying interest only on what you use. Usually secured by property or the business.
Line of creditThe same idea as a separate facility rather than on the trading account.
Invoice financeA lender advances most of an invoice's value the day you issue it and is repaid when the customer pays. Also called debtor finance or factoring.
Trade financeThe lender pays your supplier; you repay when the goods are sold, usually within 90 to 120 days.
Premium fundingThe annual insurance premium paid in ten monthly instalments, with the policy as the only security.
Equipment financeA loan over the life of a vehicle or machine with the asset as security; a chattel mortgage is the usual form for a business.
Unsecured business loanA fast loan over months, no security, assessed on bank statements. Expensive; quoted as a factor rate, which is not an interest rate.
Cash conversion cycleThe number of days between paying for something and being paid for it. The gap this page measures.

Understanding which part of the cash need is timing, which is lumpy and which is growth is what makes the facility the right size and the right type; the business cash flow page sets out how each is assessed.

Your result

Email me this result

Your figures, the facility size and the lines that fit, laid out plainly, with a note on what a lender would ask for. Nothing else, and no obligation.

General information only; it does not take your circumstances into account and is not credit or financial advice. Lender policies, insurer premiums and government scheme rules vary and change. Value Lending Pty Ltd is a Corporate Credit Representative (515167) of Connective Credit Services Pty Ltd (ACL 389328).