Working capital loans and cash-flow funding can support a defined gap between operating payments and customer receipts. The funding should fit the cause, size and duration of that gap.
PDQ Funding helps UK businesses explore loans and merchant cash advances. Start with when the cash is needed, when it is expected back and how the business will meet the added commitment.
Working capital and cash flow are related, but different
Working capital is commonly measured as current assets minus current liabilities. Cash flow describes money moving into and out of the business. A business can show positive working capital while cash remains tied up in stock or unpaid invoices.
In funding enquiries, cash-flow finance and working-capital finance often cover similar needs. The useful distinction is the actual product: a term loan, credit line, invoice facility or advance has its own eligibility, costs and payment rules.
Identify what is creating the gap
- Customers settling invoices after wages or suppliers need paying.
- Buying stock before a seasonal selling period.
- Mobilising a contract before the first collected payment.
- A temporary operating expense supported by a realistic repayment source.
Review whether the shortfall is temporary or repeated. If ordinary trading consistently spends more than it earns, additional borrowing does not solve the underlying loss. Consider changes to pricing, collection, stock or supplier arrangements alongside any finance enquiry.
Compare working capital funding structures
Business loans
A loan provides an agreed sum repaid over a set term, with interest and fees. Scheduled payments need to fit the receipt timetable. The term should not expire before the funded activity can realistically produce cash.
Revolving facilities and overdrafts
A credit facility may offer access within an agreed limit under its terms. Compare interest, account or drawdown charges, minimum payments and access conditions. A facility is not an unlimited or permanent cash reserve.
Invoice finance
Eligible unpaid business invoices can support an invoice finance assessment. Check customer eligibility, fees, collection responsibilities and liability if an invoice is not paid. A retail sale or marketplace settlement is not automatically a qualifying business invoice.
Merchant cash advances
An advance provides upfront funds collected from qualifying card receipts. Check which sales qualify, the funding fee, collection percentage and any minimum payment, reconciliation or deadline conditions. It is different from scheduled loan repayments.
Build a forecast around receipt dates
Map the dates of supplier purchases, wages, rent, tax and existing finance. Add customer receipts when they are expected to clear, rather than when an invoice is issued or an order recorded. Identify the lowest forecast cash point.
Test a late payment, lower sales or slower stock turnover. Include the proposed funding collections and the quieter period after a seasonal peak. Borrowing that fills today’s gap can create another if its payments fall due before receipts recover.
The British Business Bank working capital guide explains the range of structures to investigate.
Compare cost and liability
Ask for the funds reaching the bank, fees, total repayable and payment schedule. For an advance, the collection percentage and funding fee are different figures. For a credit line, model the expected pattern of withdrawals and repayments.
Review early settlement, security and personal guarantees. Unsecured borrowing may still involve personal liability through a guarantee. Consider independent advice before signing. Avoid treating a projected receipt or facility renewal as guaranteed.
Eligibility and information to prepare
Providers may assess trading history, credit information, current commitments, financial records and affordability. Explain why the gap arose, what will close it and whether similar gaps recur.
- Recent accounts and business bank statements.
- A cash forecast with supplier and customer payment dates.
- Aged invoices and stock information where relevant.
- Existing finance balances and repayments.
- Merchant statements for card-sales funding.
For a genuine deadline, see quick business loans. For scheduled shorter borrowing, read short-term business loans.
Frequently asked questions
Are cash-flow loans and working capital loans different products?
The terms often describe the funding purpose. Compare the actual agreement, repayment structure and costs rather than assume the label specifies a product.
Can a profitable business have a cash shortfall?
Yes. Stock purchases and unpaid invoices can absorb cash before sales are collected. A forecast needs to show the timing of receipts and payments.
Can funding cover wages or supplier bills?
A defined working-capital requirement may be considered, subject to permitted use and assessment. Show how the business will meet the new commitment after ordinary operating costs.
Will unpaid invoices guarantee finance?
No. The provider must assess the invoices, customers, terms and wider business. Disputed or otherwise ineligible invoices need to be identified.
If the need comes from buying goods or increasing capacity, read our guides to inventory and stock finance and business expansion finance.
Discuss your funding requirements
Complete the online enquiry form or call 01246 233108. Tell us the purpose, amount required and how the business trades.
PDQ Funding is a broker, not a lender. We do not charge for using our brokerage service and receive lender commission following a successful introduction. There is no obligation to accept an offer.