Fluctuating working capital

Fluctuating working capital rises and falls with temporary changes in inventory, receivables and operating cash needs. Forecast its size and timing so finance can be available before the peak occurs. A matching approach uses short-term funds for this temporary requirement, but management may prefer a different balance of cost and refinancing exposure. Distinguish a genuinely temporary peak from a permanent increase caused by business growth. Forecast errors can turn an apparently short-lived borrowing need into a longer commitment, requiring contingency funding.