Whether you’re buying stock from your manufacturer and shipping it to your warehouse or investing in marketing to get your products in front of your customers’ eyes, some costs simply need to happen before you can actually make any sales.
Imagine you’ve just made a huge order to one of your suppliers and are now patiently waiting for some stock to start moving off your warehouse shelves. In this situation, you’re dealing with a lag between costs incurred and revenue earned.
While this doesn’t necessarily mean your business is in trouble, you need to be smart about how you manage your working capital and cash flow if you want to build a healthy, scalable business. This article covers everything you need to know about working capital, including:
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Negative working capital means a business has more bills due soon than cash or assets that can quickly be turned into cash.
For example, imagine you order products from suppliers on 60 days credit but sell out your inventory within 15 days of receiving it, collecting payments immediately through online sales.
In this case, you would have negative working capital, as your current liabilities (money you owe suppliers) are higher than your current assets (cash and inventory on hand) at any given moment. Essentially, you’re relying on sales revenue to cover short-term debts.
On the flip side, if you were to pay for your stock upfront and always have both cash and inventory on hand, even if you’re selling at a slower pace, you would be operating with positive working capital.
There are a number of factors that impact working capital, including inventory management, payment terms, operational efficiency, liquidity, access to financing, seasonality and market volatility.
The time it takes for a business to turn inventory and other resources into cash flow from sales is called the cash conversion cycle.
Negative cash conversion is when a company sells inventory before they have to pay for it. Another way to look at this is that your vendors are financing your business operations, indicating strong financial health for a business.
You can use this straightforward working capital formula to calculate your position and see whether you’re operating with positive or negative net working capital:
Working Capital = Current Assets - Current Liabilities
As you can see, if your company’s current assets are less than your current liabilities, you will be operating with negative working capital, and vice versa.
For example, if your online store has €25,000 in current assets (cash, receivables and inventory) and €30,000 in current liabilities (supplier payments and short-term debts), your working capital would be:
In this case, you would be operating with negative working capital. While it may seem this situation is cause for concern, it doesn’t necessarily have to be. Let’s take a look at why.
At first glance, negative working capital might sound like your ecommerce business is in hot water, spending more than it has. However, for many nimble and fast-moving online businesses, it can be used as a strategy for growth.
For example, if you have negative cash flow conversion, meaning your company collects payment from customers before having to pay suppliers, you may choose to reinvest the money from those sales into running ads or buying more inventory.
While this places you in a position of negative working capital, it doesn’t mean your business isn’t profitable—rather, you may be investing available cash in growth or other activities that can benefit your business.
Just be sure you’re still planning for regular and unplanned expenses, as you don’t want to reach a point where you can’t pay your suppliers on time.
You want to be as capital efficient as possible by maximising the return from the money invested in working capital. That means keeping the amount of cash tied up in it low while increasing sales growth and keeping the cash conversion cycle fast. We know that might sound like a daunting task, so let’s break it down.
Here are five ways to improve your position when it comes to managing your company’s working capital:
Here we’ll take a closer look at how you can use software, financing and operational improvements to kickstart your journey to positive working capital and better cash conversion.
“Having extended payment terms while maintaining sufficient inventory turnover (such that accounts receivable is lower than accounts payable) is a good way to optimise cash flow. In practice, this means selling your inventory faster than when your payments are due. Conversely, extending payment terms for vendors (accounts payable) will also mean less pressure on the speed of the sales cycle.”
-Ruben Arnbert, CFO of Juni
Getting a better price is also about being a good customer. For this, think about the 3 R’s: reliability, regularity and relationships. In the same way you’d be more inclined to give a discount to loyal customers, suppliers give better prices to their best customers.
By forecasting orders early, sticking to plans and having good, open communication, you can see a notable impact on the price you’re paying for your goods. You can even negotiate better prices for early repayment terms on your invoices—Juni will settle them for you, and you can get up to 120 days to repay them.* It’s also well worth investing in good technology that helps you communicate better with your suppliers (more on this later).
A UK-based credit customer told us they pay for stock 30 days after delivery.
How? They source and manufacture in the UK, meaning they are closely involved in the process and are able to meet the people involved whenever they need. When looking for manufacturers, cultivate meaningful relationships, even if that means going with a slightly more expensive supplier—doing so will pay itself off down the line.
When it comes to ad spend there are two options: Spend enough to get on invoicing terms with the big platforms, which may give you 30 days to pay for ads depending on how much you spend, or use cards which will give you anywhere from 30 days to 60 days to pay.
Alternatively, by using a capital solution like Juni, you can access flexible business credit lines to spend on your ad campaigns. Whichever option you end up going for, you will see that having a buffer of an additional month or two before payments are due will significantly help with cash flow flexibility and working capital availability.
Turn first-timers into repeat customers to bring in revenue without having to spend more on new leads. This should reduce your cash conversion cycle, as it means less money required upfront spent on marketing and outreach efforts.
Building out post-purchase funnels is a vital part of maximising your customers lifetime value, as it ensures that they stay engaged with your brand and become return customers. Again, software is your friend here—check out tools like Braze to maximise your engagement with existing customers.
Consider this: In the last decade, ecommerce has seen over a 200% rise in customer acquisition costs. That’s why focusing on retaining your existing customers and turning them into loyal, repeat buyers can have such a positive impact on your working capital position.
The quickest way to improve your working capital position is through financing. For example, Juni offers financing options for certain types of payments, giving you up to 120 days to pay.* This frees up your cash flow and lets you reinvest capital in ways to further grow your business.
It’s also a question of minimising the time that cash sits with your payment processors and merchant accounts. Regularly speak to your account manager and ask what they need in order to give you access to your cash more quickly. Most will disburse cash faster for bigger/longer-serving customers, so being aware of what performance hurdles you need to reach to reduce your hold days is crucial—and it never hurts to ask.
The ecommerce industry faces a unique set of challenges when it comes to managing working capital. Luckily, there is no shortage of great software and services to facilitate the transition to positive working capital. For example, you can:
Operating with negative working capital isn’t necessarily a red flag for ecommerce businesses, but if you’re going to do so, you need to be strategic. That means you should also have a negative cash conversion cycle, or at least have tactical reasons for why you’re spending more than you’re bringing in.
Ultimately, you want to keep the cash you have tied up to a minimum while maximising sales and speeding up your cash conversion cycle. To do so, leverage the five strategies we discussed above:
When it comes to specialised software, Juni can help you spend smarter and optimise your working capital. With spend management and accounts payable features, the platform helps you track your expenses and automate cumbersome, error-prone financial processes.
Plus, when you sign up for Juni, you get access to capital for inventory and invoicing, helping you finance ads and stock before they’ve paid off. That means you can invest in what your business needs to grow without worrying about being too tight on cash.
*Juni Invoices is available for EU-based companies only. Media financing is available for companies registered in NL, SE, DE, FR, ES, IT, FI and NO, upon eligibility. Fees and terms and conditions apply. Click here for more details.
When working capital is negative, that means a company finds itself with more bills than available cash. While this can be a bad sign for certain businesses, for others, it’s not necessarily a negative. For ecommerce businesses, for example, this is a pretty common situation.
Businesses with negative working capital often operate in sectors with quick inventory turnover and strong bargaining power over suppliers. This includes ecommerce businesses, retail chains and fast-moving consumer goods (FMCG) companies.
Juni is not a bank – yet. We’re a financial technology company providing e-money services and as such are not part of a deposit guarantee scheme. Learn more about our license and how we keep your business and money safe.
Juni Technology AB (company number 559248-0908) is licensed and registered as an electronic money institution with the Swedish Financial Supervisory Authority (Sw. Finansinspektionen) (license no: 64025). Payment Card Solutions (UK) Limited (company number 05941947) and UAB B4B Payments Europe (company number 305539054) are regulated by the Financial Conduct Authority (ref: 930619) and the Bank of Lithuania (licence no: 76), respectively. The Juni Mastercard Corporate Card is issued by Payment Card Solutions (UK) Limited and UAB B4B Payments Europe pursuant to a license by Mastercard International Incorporated. Mastercard and the circles design are registered trademarks of Mastercard International Incorporated. Juni Technology AB. Masthamnsgatan 21, 413 28 Göteborg, Sweden. © 2025 Juni. All Rights Reserved.
