Circulating capital refers to the funds being constantly used to pay for core business operations, which are any activities involved in the creation of goods and services. This can include all types of inventory and operating expenses.
The other type of capital is fixed capital; the term refers to funds invested in a business for more than one cycle of production (which is typically no more than a year). To increase the return on investment, management can focus on minimizing the amount of fixed capital. Doing so leaves what may be a substantially reduced amount of capital to fund a business.