Working capital loans: funding the gap between paying out and getting paid

What is working capital, in plain terms?

Every business has a gap between money going out and money coming in. You pay wages this week, buy stock this month, pay rent on the 1st — and customers pay you on their timetable, not yours. Working capital is the cash that fills that gap.

When the gap is small and steady, the business funds it from its own cash. When it widens — because you’ve grown, because a big customer pays slowly, because a season has turned — the business needs outside money to bridge it. That’s what a working capital loan does.

Why do growing businesses run short?

This surprises a lot of owners. A business that doubles its sales doesn’t just double its income; it also doubles the stock it has to buy, the wages it has to pay before invoices are settled, and the GST it has to account for. If customers take 45 days to pay, every extra dollar of sales ties up cash for 45 days. Growth eats cash before it produces it.

GST adds another wrinkle. At 15%, it’s a sizeable share of every invoice, and depending on how you account for GST you may owe it to Inland Revenue before your customer has paid you. Fast-growing businesses often find a GST return is the moment the working capital gap becomes obvious.

How do you measure your working capital gap?

A simple version, using numbers you can pull from your accounting software:

Measure	Question	Example (illustrative)
Stock days	How long does stock sit before it’s sold?	30 days
Debtor days	How long do customers take to pay?	40 days
Creditor days	How long do you take to pay suppliers?	20 days
Cash cycle	Stock days + debtor days − creditor days	50 days

If your average daily costs are, say, $4,000, a 50-day cycle means roughly $200,000 of cash is tied up at any time. If your cash on hand is well short of that, the difference is your working capital gap — and it gives you a sensible starting point for how much to borrow.

Which fast options fund working capital?

Pattern of gap	Option that usually fits	Why
One-off (a big order, a slow quarter)	Unsecured or short-term loan	Defined amount, defined payback
Recurring every month	Line of credit	Draw and repay as needed
Driven by slow-paying business customers	Invoice finance	Grows automatically with your invoices
Large, or credit issues	Property-secured loan	More capacity, more flexible on history
Card-heavy retail or hospitality	Merchant cash advance	Repays from daily takings

The structure matters more than the speed. A one-off loan used to fund a permanent gap will need replacing as soon as it’s repaid; a revolving facility used for a one-off cost can drift into permanent debt.

For the revolving options, see business line of credit and invoice finance. For one-off needs, unsecured business loans is the place to start.

Not sure which pattern your gap follows? A specialist can tell you in one call.

What does it look like in practice?

Illustrative example. A Waikato food manufacturer lands a supermarket contract that will triple volumes. It must buy ingredients and packaging and pay extra staff for six weeks before the first payment arrives, with the retailer paying on extended terms. A one-off loan would cover the first cycle but not the second. Instead, the manufacturer sets up invoice finance against the supermarket invoices, with a short unsecured loan to cover the first six weeks until invoices start flowing.

How do you reduce the gap instead of just funding it?

Funding the gap is fine; shrinking it is better. Some levers:

• Invoice promptly and on clear terms. Every day you delay invoicing adds a day to your cycle.
• Chase overdue accounts early. Our page on late-paying customers covers fast options and collection tactics.
• Negotiate supplier terms. Even a week longer on your biggest supplier makes a difference.
• Hold less slow-moving stock. Cash sitting on shelves isn’t working.
• Ask for deposits or progress payments on big jobs.

Should working capital be secured or unsecured?

Both work, and the choice usually comes down to size and cost:

• Unsecured suits smaller gaps and businesses with strong, steady turnover. It’s fast and keeps property out of it, but limits are tied to turnover and the cost is higher.
• Property-secured suits larger gaps, businesses with credit issues or tax debt, and owners who want a bigger buffer. It’s usually cheaper than unsecured for the same amount and can be very fast, but your property is at stake.
• Receivables-secured (invoice finance) suits B2B businesses whose gap is caused by customer payment terms.

A common pattern is to start with an unsecured facility for speed, then move to a cheaper secured or receivables-based structure once the gap is clearly long-term.

How does PAYE timing affect working capital?

Employers have fixed tax deadlines that don’t move when customers pay late. Inland Revenue requires small employers to pay PAYE deductions by the 20th of the following month, while large employers pay twice monthly. A month where wages were high and invoices are still outstanding can leave a business short on the 20th. Knowing those dates — and building them into a forecast — is one of the simplest ways to see a working capital squeeze coming. Our covering payroll page looks at the fast options for that specific pinch.

What do lenders look for?

Lenders funding working capital want to see that the gap is real and temporary, not a sign of losses. Expect questions about your margins, your biggest customers and how quickly they pay, as well as the usual bank statements and ID. A business that can explain its cash cycle clearly gets a faster, better answer.

Fund the gap the right way

Tell us what’s tying up your cash and we’ll suggest the structure that fits, not just the fastest product. There’s no credit check when you enquire, and your details stay with one specialist rather than being circulated to multiple lenders. The more accurate your figures on turnover, customer payment times and the amount you need, the more useful our first call will be. Check your options.