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A business’s working capital is equivalent to the amount of cash it can deploy very rapidly, as such even very profitable businesses can have working capital problems, in particular this can develop because of long dated payments from clients.
Short Term Sources of Working Capital Financing Factoring
Factoring is a traditional source of short term funding. Factoring facility arrangements tend to be restrictive and entering into a whole-turnover factoring facility can lead to aggressive chasing of outstanding invoices from clients, and a loss of control of a company’s credit function.
Instalment CreditInstalment credit is a form of finance to pay for goods or services over a period through the payment of principal and interest in regular payments.
Invoice DiscountingInvoice Discounting is a form of asset based finance which enables a business to release cash tied up in an invoice and unlike factoring enables a client to retain control of the administration of its debtors.
Why not read more about how to compare invoice discounting with factoring?
Income received in advanceIncome received in advance is seen as a liability because it is money that does not correlate to that specific accounting or business year but rather for one that is still to come. The income account will then be credited to the income received in advance account and the income received in advance will be debited to the income account such as rent.
Advances received from customersA liability account used to record an amount received from a customer before a service has been provided or before goods have been shipped.
Bank OverdraftA bank overdraft is when someone is able to spend more than what is actually in their bank account. The overdraft will be limited. A bank overdraft is also a type of loan as the money is technically borrowed.
Commercial PapersA commercial paper is an unsecured promissory note. Commercial paper is a money-market security issued by large corporations to get money to meet short term debt obligations e.g.payroll, and is only backed by an issuing bank or corporation’s promise to pay the face amount on the maturity date specified on the note. Since it is not backed by collateral, only firms with excellent credit ratings will be able to sell their commercial paper at a reasonable price.
Trade financeAn exporter requires an importer to prepay for goods shipped. The importer naturally wants to reduce risk by asking the exporter to document that the goods have been shipped. The importer’s bank assists by providing a letter of credit to the exporter (or the exporter’s bank) providing for payment upon presentation of certain documents, such as a bill of lading. The exporter’s bank may make a loan to the exporter on the basis of the export contract.
Letter of CreditA letter of credit is a document that a financial institution issues to a seller of goods or services which says that the issuer will pay the seller for goods/services the seller delivers to a third-party buyer. The issuer then seeks reimbursement from the buyer or from the buyer’s bank. The document is essentially a guarantee to the seller that it will be paid by the issuer of the letter of credit regardless of whether the buyer ultimately fails to pay. In this way, the risk that the buyer will fail to pay is transferred from the seller to the letter of credit’s issuer.
Working capital refers to daily operation of the business. That is to meet the running cost, to pay suppliers, to pay wages, and so on. Therefore working capital financing is to finance the operations of a company's business.
Based on one year financing called WC finacing,short term financing.
when working capital reduction for some reason
The company may need to finance working capital by one of the sources available
i think that meaning working capital financing
The most important concept of working capital is that how it is managed and generated. It is usually the profit ratio being used in the company to pay the salaries, operations and maintenance. Greater the working capital, greater the equity.
Working capital financing means operational business cost as raw material, staff salary and rent etc.
Working capital is the financing in a small business that helps a company pay its trade creditors and cash flow – it is the finance that businesses need for their day-to-day trading operations.