4 min
31 May 2025
Running a business in India isn't just about big ideas. It’s also about handling day-to-day expenses smartly. That's where temporary working capital steps in. Whether you're managing seasonal spikes, restocking inventory, or paying short-term bills, this type of capital helps you stay afloat and stress-free.
As an entrepreneur, I’ve realised how important it is to know the difference between permanent and temporary capital. It's like understanding the difference between daily food and occasional treats. You need both, but for different reasons. In this article, I’ll break it down in simple terms. We'll talk about what it is, when you need it, how to calculate it using the temporary working capital formula, and real-life temporary working capital examples that will make it all easy to understand.
If your business runs a general store, your working capital covers inventory costs, electricity bills, staff salaries, and more. It's the fuel your engine needs every day to keep moving.
Key features:
You run a sweet shop. During Diwali, you receive three times more orders than usual. You need extra money for raw materials, packaging, delivery, and staff. This extra money is your temporary working capital.
Other examples include:
Temporary working capital = Total working capital – Permanent working capital
Here’s how it works:
Let’s say your total working capital needs for peak season = Rs. 10 lakhs
Your permanent working capital = Rs. 6 lakhs
Then, your temporary working capital = Rs. 4 lakhs
This Rs. 4 lakhs is the extra boost you need only during peak periods.
Whether it’s a sweet shop in Kanpur or an online fashion brand in Mumbai, every business in India can benefit from it. And when in doubt or need, don’t hesitate to explore a trusted option like theBajaj Finserv Business Loanfor quick access to funds.
As an entrepreneur, I’ve realised how important it is to know the difference between permanent and temporary capital. It's like understanding the difference between daily food and occasional treats. You need both, but for different reasons. In this article, I’ll break it down in simple terms. We'll talk about what it is, when you need it, how to calculate it using the temporary working capital formula, and real-life temporary working capital examples that will make it all easy to understand.
What is working capital?
Working capital is the money a business needs to manage its daily activities. It’s the difference between your current assets (like cash, inventory, receivables) and current liabilities (like bills and short-term loans).If your business runs a general store, your working capital covers inventory costs, electricity bills, staff salaries, and more. It's the fuel your engine needs every day to keep moving.
Temporary working capital characteristics
Temporary working capital is the extra capital needed during peak business cycles. It’s not always required—only when business activity shoots up.Key features:
- It is short-term
- Arises due to seasonal demand
- Varies depending on business type
- Is sometimes predictable
- Can be managed through credit or short-term loans
Example of temporary working capital
Let’s understand this with a simple temporary working capital example.You run a sweet shop. During Diwali, you receive three times more orders than usual. You need extra money for raw materials, packaging, delivery, and staff. This extra money is your temporary working capital.
Other examples include:
- Ice cream sellers needing extra stock in summer
- Clothing stores increasing inventory before festivals
- Toy shops boosting supply ahead of Christmas
How to calculate temporary working capital
Use this temporary working capital formula:Temporary working capital = Total working capital – Permanent working capital
Here’s how it works:
Let’s say your total working capital needs for peak season = Rs. 10 lakhs
Your permanent working capital = Rs. 6 lakhs
Then, your temporary working capital = Rs. 4 lakhs
This Rs. 4 lakhs is the extra boost you need only during peak periods.
When do businesses need temporary working capital?
Temporary working capital comes in handy during:- Festivals like Diwali, Holi, or Eid
- End-of-season sales
- Flash discounts and marketing campaigns
- Stock clearance sales
- Sudden big orders from clients
- When expanding to new regions temporarily
Risks of mismanaging temporary working capital
Not managing temporary working capital properly can create major issues.- Missed orders or delivery delays
- Unhappy customers due to lack of stock
- Borrowing at high interest last minute
- Employee dissatisfaction due to delayed salaries
- Business image getting affected due to poor planning
Usage of temporary working capital
Here’s how businesses generally use temporary working capital:| Use case | Description |
| Raw material purchase | Stocking up for upcoming demand |
| Hiring temporary workers | For packaging, delivery, or extra production |
| Seasonal advertising | Running local ads or social media campaigns |
| Paying suppliers faster | To get early delivery or discounts |
| Transport and logistics | Handling extra shipping and delivery loads |
Conclusion
Temporary working capital might look like a small piece of the puzzle, but it plays a big role in smooth business functioning. Knowing when to use it and how much you need saves you from financial hiccups.Whether it’s a sweet shop in Kanpur or an online fashion brand in Mumbai, every business in India can benefit from it. And when in doubt or need, don’t hesitate to explore a trusted option like theBajaj Finserv Business Loanfor quick access to funds.
