What is Working Capital?
The funds or money which is used in day to do business dealings like paying creditors and maintaining cash flow is identified as working capital of that business. It is the prime requirement of a business to run or deal with clients and directly influences the profits of the company.
Need of Working Capital Financing
Sometimes business owners face shortage in working capitals or cash flow difficulties due to large amounted invoices. Some of the invoices take up to 90 days for getting the payment and leads to serious cash flow scarcity.
In this situation, the business owners get help from different commercial banks or lending agencies in terms of borrowing money against created invoices. This process is known as invoice factoring or discounting. To get rid of long dated payments from customers can also bring cash flow scarcity for the good going companies. So, the significance of working capital financing is a must to know factor.
There are two types of sources available for working capital financing i.e. Short term and long term. Most of the financing options described below, have a look.
This is the traditional source of short term funding for the growing businesses in their deprived situations. To chase outstanding invoices from customers as well as recovering from a loss of control on credit function of a company, factoring helps a lot.
• Installment Credit:
It is a special kind of commercial financing source to pay for services or goods over a certain time by the payment of principal and interest in usual expenditures. It helps the company in being productive in a scarcity period.
• Invoice Discounting:
This is an instance of asset supported finance and it assists a company to release money engaged in an invoice. It doesn’t allow the customers to administrate of its...