What is the financing of working capital?

working capital financing is a strategy for ensuring financing that meets the typical and usual operating costs of a given business company. Funding of this type usually occurs when the claims generated by the company are not enough to make these expenses, often due to the time needed, for customers to proceed to pay for outstanding invoices. With working capital financing, the company has money in hand for timely settlement of expenditure and repays the financing later, when the income is sufficient to settle the debt.

There are several ways to manage the task of financing working capital. One approach is to provide a credit line of working capital. By this approach, the company borrows any amount needed to manage the current operating expenditure, provided that the amount is within the credit limit associated with the credit line. One of the main advantages is that interest is only assessed to excellent balance. Should be tsport using creditThe line to balance the first month of the month and then pays this balance a few weeks later, is likely to lead to small or no interest fees.

Another way to finance working capital is to obtain a short -term loan. This approach is often effective when income goes through seasonal cycles. The company can borrow enough to maintain surgery during the out -season period, and then leave the loan as soon as the revenue level increases during the peak period. Unlike the credit line, interest fees will begin to increase at the time of the loan. Assuming the interest rate is compensated by what the company would pay in terms of late fees to sellers, the loan may still be a viable means of financing operations during slow periods.

Factoring is an increasingly popular approach to working capital financing. This method includes the sale of the latestAbout bats of generated invoices for factoring partner. The partner, in turn, proceeds eighty to ninety percent of the nominal value of these invoices. Customers bring payments directly to a partner for working capital, which then applies these payments to the balance of the company owed. Once the amount of the retirement advance is, other means will be extended to the company, when and as soon as other payments are received on a particular dose of invoices. The factoring partner maintains a small percentage, usually three to five percent of the nominal value of invoices, as a fee for providing financing.

A similar approach to factoring is a cash advance based on credit card receipts. This form of working capital financing involves obtaining a short -term loan that is provided on the basis of the credit card payment that the company receives every month. Creditors usually provide a deposit that makes the percentage of these payments, knowing that the Balance loan plus interest will be retired by a certain date.One of the advantages of this approach is that the creditor does not require the company's customers to proceed directly to the creditors, which means that customers never have to know that there is any type of financing.