Methodology
Working Capital Planner methodology
Educational only: Business decision support, not accounting, tax or legal advice.
Privacy: Calculations run locally; Margin101 does not receive your commercial inputs.
Update policy: Reviewed when formulas or official dependencies change.
Scope: Market-neutral small-business planning using your own assumptions.
1. Formulas and units
currentWorkingCapitalRequirement = currentReceivables + currentInventory − currentPayablesWhere
- currentReceivables
- Current receivables (currency units at the current balance date on the selected tax basis)Source: Business record
- currentInventory
- Current inventory (currency units at the current balance date on the selected valuation and tax basis)Source: Business record
- currentPayables
- Current payables (currency units at the current balance date on the selected tax basis)Source: Business record
- currentWorkingCapitalRequirement
- Current working-capital requirement (currency units on one consistent tax basis)Source: Calculated output
- supplier.currentWorkingCapitalRequirement
- Current working-capital requirement (currency units)Source: Calculated output
proposedWorkingCapitalRequirement = proposedReceivables + proposedInventory − proposedPayablesWhere
- proposedReceivables
- Proposed receivables (currency units in the proposed balance-date scenario on the selected tax basis)Source: User decision
- proposedInventory
- Proposed inventory (currency units in the proposed balance-date scenario on the selected valuation and tax basis)Source: User decision
- proposedPayables
- Proposed payables (currency units in the proposed balance-date scenario on the selected tax basis)Source: User decision
- proposedWorkingCapitalRequirement
- Proposed working-capital requirement (currency units on one consistent tax basis)Source: Calculated output
- supplier.proposedWorkingCapitalRequirement
- Proposed working-capital requirement (currency units)Source: Calculated output
cashReleased = currentWorkingCapitalRequirement − proposedWorkingCapitalRequirementWhere
- currentWorkingCapitalRequirement
- Current working-capital requirement (currency units on one consistent tax basis)Source: Calculated output
- proposedWorkingCapitalRequirement
- Proposed working-capital requirement (currency units on one consistent tax basis)Source: Calculated output
- cashReleased
- Cash released (currency units on one consistent tax basis)Source: Calculated output
- supplier.currentWorkingCapitalRequirement
- Current working-capital requirement (currency units)Source: Calculated output
- supplier.proposedWorkingCapitalRequirement
- Proposed working-capital requirement (currency units)Source: Calculated output
currentWorkingCapitalRequirement = currentReceivables + currentInventory − currentPayablesWhere
- currentReceivables
- Current receivables (currency units at the current balance date on the selected tax basis)Source: Business record
- currentInventory
- Current inventory (currency units at the current balance date on the selected valuation and tax basis)Source: Business record
- currentPayables
- Current payables (currency units at the current balance date on the selected tax basis)Source: Business record
- currentWorkingCapitalRequirement
- Current working-capital requirement (currency units on one consistent tax basis)Source: Calculated output
- supplier.currentWorkingCapitalRequirement
- Current working-capital requirement (currency units)Source: Calculated output
proposedWorkingCapitalRequirement = proposedReceivables + proposedInventory − proposedPayablesWhere
- proposedReceivables
- Proposed receivables (currency units in the proposed balance-date scenario on the selected tax basis)Source: User decision
- proposedInventory
- Proposed inventory (currency units in the proposed balance-date scenario on the selected valuation and tax basis)Source: User decision
- proposedPayables
- Proposed payables (currency units in the proposed balance-date scenario on the selected tax basis)Source: User decision
- proposedWorkingCapitalRequirement
- Proposed working-capital requirement (currency units on one consistent tax basis)Source: Calculated output
- supplier.proposedWorkingCapitalRequirement
- Proposed working-capital requirement (currency units)Source: Calculated output
cashReleasedFromTerms = currentWorkingCapitalRequirement − proposedWorkingCapitalRequirementWhere
- currentWorkingCapitalRequirement
- Current working-capital requirement (currency units on one consistent tax basis)Source: Calculated output
- proposedWorkingCapitalRequirement
- Proposed working-capital requirement (currency units on one consistent tax basis)Source: Calculated output
- cashReleased
- Cash released (currency units on one consistent tax basis)Source: Calculated output
- supplier.currentWorkingCapitalRequirement
- Current working-capital requirement (currency units)Source: Calculated output
- supplier.proposedWorkingCapitalRequirement
- Proposed working-capital requirement (currency units)Source: Calculated output
earlyPaymentDiscountValue = orderValue × earlyPaymentDiscountRateWhere
- orderValue
- Supplier order value (currency units)Source: User assumption
- earlyPaymentDiscountRate
- Entered early-payment discount (decimal rate)Source: User assumption
- earlyPaymentDiscountValue
- Early-payment discount value (currency units)Source: Calculated output
acceleratedPaymentAmount = orderValue − earlyPaymentDiscountValueWhere
- orderValue
- Supplier order value (currency units)Source: User assumption
- acceleratedPaymentAmount
- Accelerated payment amount (currency units)Source: Calculated output
- earlyPaymentDiscountValue
- Early-payment discount value (currency units)Source: Calculated output
acceleratedPaymentDays = standardPaymentDay − proposedPaymentDayWhere
- standardPaymentDay
- Standard payment day (day offset)Source: User assumption
- proposedPaymentDay
- Proposed payment day (day offset)Source: User assumption
- acceleratedPaymentDays
- Accelerated payment days (days)Source: Calculated output
acceleratedPaymentFundingCost = acceleratedPaymentAmount × annualFundingRate × acceleratedPaymentDays ÷ dayCountBasisWhere
- annualFundingRate
- Entered annual funding rate (decimal rate)Source: User assumption
- dayCountBasis
- Funding day-count basis (days per year)Source: User assumption
- acceleratedPaymentAmount
- Accelerated payment amount (currency units)Source: Calculated output
- acceleratedPaymentDays
- Accelerated payment days (days)Source: Calculated output
- acceleratedPaymentFundingCost
- Funding cost of paying sooner (currency units)Source: Calculated output
netEarlyPaymentBenefit = earlyPaymentDiscountValue − acceleratedPaymentFundingCostWhere
- earlyPaymentDiscountValue
- Early-payment discount value (currency units)Source: Calculated output
- acceleratedPaymentFundingCost
- Funding cost of paying sooner (currency units)Source: Calculated output
- netEarlyPaymentBenefit
- Net early-payment benefit (currency units)Source: Calculated output
Money inputs and outputs use the currency selected in the scenario without changing the canonical methodology. Rates, margins, utilisation and buffers are entered as percentages and converted to decimal values for calculation.
2. Worked example
Input assumptions
The worked rows below come from the exact engine and the visible default assumptions.
Calculation and outputs
Example
The worked rows below come from the exact engine and the visible default assumptions.
- Current working-capital requirement
- 250.00 currency units
- Proposed working-capital requirement
- 160.00 currency units
- Cash released
- 90.00 currency units
- Supplier current working-capital requirement
- 250.00 currency units
- Supplier proposed working-capital requirement
- 220.00 currency units
- Supplier terms cash released
- 30.00 currency units
- Supplier early-payment discount value
- 200.00 currency units
- Supplier accelerated payment amount
- 9,800.00 currency units
- Supplier accelerated payment days
- 30 days
- Supplier accelerated-payment funding cost
- 96.66 currency units
- Supplier net early-payment benefit
- 103.34 currency units
The exact engine-derived outputs are shown in the labelled rows below.
Interpretation
A positive result releases cash; a negative result consumes cash under the entered balances.
Scenario study: supplier terms and early-payment discount
Compare an early-payment discount with the cost of paying sooner
First confirm that both supplier terms are genuinely available. Keep discount value and accelerated-payment funding cost as separate trace rows.
Input basis
- Order value: 20,000 CU; early-payment discount: 2%.
- Payment is accelerated by 20 days; user-entered annual funding rate: 12%.
- Day-count basis: 365; values before indirect tax.
| Row | Intermediate calculation | Result |
|---|---|---|
| Discount value | 20,000 × 2% | 400 CU |
| Accelerated payment | 20,000 − 400 | 19,600 CU |
| Funding cost | 19,600 × 12% × 20 ÷ 365 | 128.88 CU |
| Modelled net benefit | 400 − 128.88 | 271.12 CU |
Interpretation
Under these user-entered assumptions, the discount exceeds the modelled funding cost by 271.12 CU. Liquidity, supplier risk and actual contract terms remain separate decisions.
Boundaries and next step
- No standard supplier term, funding benchmark, late-payment advice or guaranteed saving is supplied.
- If the term is unavailable or funding assumptions change, rebuild the comparison.
Continue with Working Capital Planner supplier-terms module.
3. Validation and boundary checks
- All six entered balances must be finite and non-negative.
- Signed working-capital requirements and cash released remain visible.
- Each requirement reconciles receivables plus inventory less payables.
- Supplier early-payment day cannot exceed the standard day, and the day-count basis must be positive.
- Every successful supplier-module numeric output must remain finite; overflow fails closed.
4. Assumptions and source classification
- All inputs use one consistent reporting period, balance date, currency and indirect-tax basis.
- Targets and proposed values are user scenarios, not forecasts or benchmarks.
- The supplier-terms module changes payables through the exact working-capital owner engine and keeps discount funding cost separate.
- Every supplier term, discount and funding rate is user-entered; no provider benchmark is embedded.
This planner has no current policy-data dependency. Its commercial assumptions are user supplied. Registered family-level regression suites exercise the shared business-logic engine and worked-result reconciliation.
5. Limitations
- No market rate, statutory late-payment fee, bad-debt forecast or accounting classification is inferred.
- This is educational decision support, not accounting, tax, legal or financial advice.
This is educational decision support, not tax, accounting, legal or financial advice. Check the treatment of your actual transactions under the rules that apply to your business and seek qualified advice where appropriate.
6. Update and evidence policy
Registered family-level suites test formula invariants and example reconciliation; the release ledger records that coverage without claiming a separate oracle for every line of public copy. There is no official threshold or benchmark to refresh for this planner. Commercial inputs remain user-supplied because they vary by business and contract.
Change history
- : Initial public release of the planner and methodology after pre-launch calculation, content, source and interaction review.
Related reading
Guides to interpret the decision and its assumptions.
- Business Cash-Flow Review: Dates, Gaps and Next Decisions
Build a dated cash view, locate the first shortfall and test collections, payment, inventory and financing timing one scenario at a time.
Read guide - Working Capital Explained for Small Businesses
Separate net current assets from operating working-capital requirements before testing receivables, inventory and payables changes.
Read guide - How Much Working Capital Does Growth Consume?
Reconcile signed receivables, inventory and payables changes to show scenario cash absorbed at a stated balance date.
Read guide - Why Inventory Growth Can Create a Cash Crisis
Map supplier payment, stock commitment, sell-through and customer receipt dates to expose the inventory funding gap.
Read guide - A Small-Business Expansion Decision Scorecard
Record demand, contribution, dated cash, capacity, people, operations and explicit stop conditions without an authoritative score.
Read guide