What Is Working Capital? Why Does It Become Critical as an E-Commerce Business Grows?
August 18, 2026 · KârHesapla · Ferhat Demir · E-commerce Specialist
In the previous article we described the time gap between profit and cash. This article puts a name to that gap: working capital. The concept may look academic, but it actually answers a very concrete question: how much cash needs to be “ready at all times” to keep daily operations going? The answer to this question is not fixed — it needs to grow in proportion as the business grows, and it is exactly when this proportion breaks down that sellers run into cash trouble.
A simple definition: what working capital covers
Working capital can roughly be thought of as “money tied up in stock and receivables” minus “money owed to suppliers”. In e-commerce, these three items correspond to the following:
- Stock: The cost of products waiting in the warehouse/on the shelf that have not yet been sold
- Receivables: Amounts from sales already made that have not yet arrived from the marketplace as settlements
- Payables: The cost of goods bought on credit that has not yet been paid to the supplier (if any)
As long as payables stay the same, the working capital the business needs grows as stock and receivables increase. This growth does not appear in the profit figure; it only shows up in the bank account.
The cash conversion cycle: how long money stays “out”
The measure that makes this concept concrete is the cash conversion cycle: the number of days from the moment you pay the supplier until the sale is made and the settlement reaches your account. The longer this cycle, the more capital has to be kept “out” at the same time.
| Step | Approximate duration |
|---|---|
| Payment to supplier → product reaches you | 7-20 days (varies by supplier) |
| Product waits in the warehouse/on the shelf → is sold | Depends on your inventory turnover, from a few days to a few months |
| Sale → settlement reaches your account | A fixed term that varies by marketplace |
The sum of these three durations shows how long your capital stays “locked”. Increasing your inventory turnover (that is, shortening the middle step) is the most direct way to reduce your working capital needs — we covered how to measure it in the inventory turnover article.
Why does it become critical during growth?
At a stable sales volume, the cash conversion cycle repeats at a predictable rhythm and the business adapts to it. But when sales grow, more stock has to be bought in each cycle — which means more capital stays “out” over the same cycle length. When revenue grows by 50%, the working capital need also grows by roughly 50%; if additional cash to cover this increase is not planned in advance, growth can push the business into a cash squeeze even if it is profitable.
This is exactly the point where many sellers are surprised: “sales went up, so why do I have less money?” The answer is simple: more sales mean more capital tied up in stock, and this increase happens faster than settlements arrive.
How can the working capital need be reduced?
There are three levers, and they are usually used together. The first is increasing inventory turnover — that is, shortening the time a product waits on the shelf. The second is negotiating deferred payment terms with suppliers; this reduces the net need by increasing the payables item. The third is considering payment/marketplace options with shorter settlement terms. If none of these three levers is used, the only solution left is injecting additional outside capital (your own savings or a loan) — which is usually the most expensive option.
When is this concept less important?
In models that operate without stock (producing/sourcing on order), the working capital need shrinks considerably because the stock item drops almost to zero. For such businesses, the cash conversion cycle is reduced mostly to the gap between the sourcing time and the settlement term — which is not trivial, but is a far more manageable risk than in the stock-holding model.
A small example with numbers
Consider a seller with monthly revenue of 100,000 TL: an average of 40,000 TL of products waits in stock, there are 25,000 TL of settlements not yet collected from the marketplace, and there is no deferred debt to suppliers. This seller’s working capital need is about 65,000 TL — meaning an amount equal to two thirds of revenue stays constantly “locked” outside. When revenue grows by 40%, this need rises proportionally to about 91,000 TL; if the 26,000 TL difference is not planned in advance, growth happens without any cash left in hand.
Checklist
- Have you calculated your own cash conversion cycle (sourcing + stock waiting + settlement term) in days?
- Have you estimated in advance your additional working capital need if your sales grow by 30-50%?
- Is there a concrete step that will increase your inventory turnover?
- Have you considered the possibility of negotiating deferred payment with your supplier?