Financing of Working Capital

We talked 

Theories and Approaches to wcm and Dimension of Working Capital management and Managing Investment in Current Assets

in our previous talk. Today we are going to talk about Financing of Working Capital.

 
Another important dimension of working capital management is determining the mix of finance for working capital which may be a combination of spontaneous, short-term and long-term sources. Spontaneous sources of financing consist of trade credit and other accounts payable that arise spontaneously in the firm’s day-to-day operations. For instance, as the firm makes purchases of raw material and supplies, trade credit is often made available spontaneously, as per trade usage, from the firm’s suppliers.  In addition to trade credit, wages and salaries payable, accrued interest and accrued taxes also provide the firm with valuable sources of spontaneous financing. The credit which aries in direct conjunctions with the day-to-day operations of the firm provide spontaneous source of financing of working capital.  

Agency Management Software or Insuranc CRM can help business to manage working capital.

Bills payable, short-term bank loans, inter-corporate loans, commercial paper are the most common examples of short-term sources of working capital finance. Term loans, debentures, equity and retained earnings constitute long-term sources of working capital finance.

 

What combination of different sources of working capital finance should be employed towards financing the fluctuating and permanent working capital, constitutes a major problem confronting finance manager.
 
Ref: agency management software, insurance crm, Term Life Insurance Quote