Working Capital Requirement (BFR) Calculator
Written by Thierno Sadou Diallo, formula verified per our methodology • Last checked on 10/11/2026
The working capital requirement is calculated with inventory + accounts receivable − accounts payable. For €50,000 of inventory, €80,000 of receivables, and €60,000 of payables, the requirement is €70,000.
Explanation
The working capital requirement represents the amount a company must permanently finance to run its operating cycle, i.e. the time lag between expenses incurred (buying inventory, production) and the corresponding cash receipts (customer payments): as long as customers haven't paid and inventory isn't yet sold, the company must advance this cash, partly offset by the payment terms it gets from its own suppliers. A positive requirement, the most common case, signals a need for external financing (cash, bank overdraft, short-term credit line) to bridge this gap; a negative requirement, rarer but very favorable (common in large retail, which collects sales immediately while paying suppliers in 30 or 60 days), means instead that the company has a short-term surplus of resources, with suppliers indirectly financing part of the business. The formula shown here is deliberately simplified: fuller versions also include other operating receivables (recoverable VAT) and other operating payables (collected VAT, payroll and tax charges due), and service companies without inventory generally replace that line with work in progress, subtracting deposits already received from customers. Reducing payment terms granted to customers, limiting inventory levels, or negotiating longer terms with suppliers are the three main levers for lowering a requirement that's grown too high, which can otherwise strangle the cash flow of a company that's profitable on paper. To assess this ability to finance the requirement without outside funding, see our self-financing capacity calculator, and for a complementary short-term solvency indicator, our current ratio calculator.
Example: €50,000 inventory, €80,000 receivables, €60,000 payables
Inputs
Inventory: €50,000. Accounts receivable: €80,000. Accounts payable: €60,000.
Calculation
Requirement = 50,000 + 80,000 − 60,000 = €70,000.
Result
This company must permanently finance €70,000 to run its operating cycle.
Frequently asked questions
Is a negative working capital requirement always good news?
Generally yes, since it means the company has a short-term surplus of resources rather than a financing need, a valuable cash-flow advantage. You should still check that this negative requirement comes from a genuinely favorable business model (fast customer collection, supplier terms that are long but normally negotiated) and not from a supplier payment delay that would become hard to sustain over time.
How do you reduce a requirement that has grown too high?
Three main levers: reduce payment terms granted to customers (faster invoicing, reminders, early-payment discounts), limit the level of inventory tied up (better supply management), or negotiate longer payment terms with suppliers. Each of these levers frees up cash without needing additional capital.
Why can a profitable company run short of cash because of this requirement?
Because profitability (measured by accounting results) and available cash don't follow the same timeline: a company can be profitable on paper while short of cash if its working capital requirement grows faster than its ability to finance it, for example during strong growth that requires buying more inventory and granting terms to new customers before even collecting the corresponding sales. This is a common cause of failure for otherwise fast-growing companies.