Working capital is the funds required by a business to manage regular expenses like utilities, employee salaries, supply chain, etc.
There are two different kinds of working capital:
Gross Working Capital
The current assets of a firm constitute the gross working capital. Current assets are those intangible assets which are convertible to cash within a year. For example, inventory, bills receivables, short-term investments, cash equivalents, etc.
Net Working Capital
Net working capital is the difference between current assets and current liabilities of a company. Current liabilities are the debts that it has to pay within a year. For example, bills payable, interest payable, short-term loans, dividends, income tax, etc.
Working Capital Cycle
It is the time taken by a business to convert its net working capital to cash. Selling inventory rapidly and collecting outstanding bills from customers quickly is one of the ideal ways to shorten this period.
A longer cycle means that the firm is keeping its investments engaged in working capital without returning any revenue.
Working Capital Financing
Businesses have to meet working capital shortages promptly to continue the operations and the income. There are few financing options that companies can go for when facing such a shortage.
Working Capital Loans
Opting for working capital loans for small business is one of the exceptional ways to address its scarcity. Several NBFCs provide such loans with tenors ranging from 12 to 60 months. These loans can be a solution both for the short-term and long-term needs of a business.
Invoice financing is a type of secured loan where businesses use their bills receivable to avail loans. The invoices act as collateral against which financial institutions grant a discounted amount as the loan.
Inventory financing is another secured loan where companies use their inventory as collateral to avail loans.
Business Credit Cards
Business credit cards come with a higher credit limit than standard ones. Opting for these credit cards can act as a short-term solution to working capital shortages.
Other kinds of Working Capital
There are other different kinds of working capital in addition to the ones mentioned above:
Permanent working capital
Permanent working capital or fixed working capital is the minimum capital that a business requires to maintain daily operations.
It includes the following:
Regular Working Capital
Regular working capital is the minimum funds a company needs to convert its current assets into cash.
Reserve working capital
Reserve working capital is the substitute funds kept for regular working capital and is utilised when a firm faces unforeseen circumstances or impending cash shortfalls.
Temporary Working Capital
Temporary working capital or fluctuating/variable working capital is the funds a business utilises to meet demands that arise during a specific time of a year.
It includes the following:
Special Working Capital
Special working capital is the amount a company needs for specific business-related expenditures like advertisements, promotion, product launch, etc.
Seasonal Working Capital
Seasonal working capital is one of the kinds of working capital that a firm needs for expenses that arise in a particular season.
Opt for financial assistance to meet your monetary shortfall. Utilise the advance fruitfully to optimise business operations and generate your target revenue. Meet the repayment terms easily and grow business together.