Mention the Common Sources of Working Capital Finance
Posted by Ripon Abu Hasnat on Wednesday, September 30, 2015 | 0 comments
Working capital is a financial metric represents operating liquidity available to a business, organization or other entity, including governmental entity.
Common Sources of Working Capital Finance:
Loans from Commercial Banks:Small scale industries can raise loans from the commercial banks with or without security. This method of financing does not require any legal formality except that of creating a mortgage on the assets.
Public Deposits: Often companies find it easy and convenient to raise, short-term funds by inviting shareholders, employees and the general public to deposit their savings with the company.
Trade Credit: Just as the companies sell goods on credit, they also buy raw materials, components and other goods on credit from their suppliers.
Factoring: Factoring is a financial service designed to help firms in managing their book debts and receivables in a better manner.
Discounting Bills of Exchange: When goods are sold on credit, bills of exchange are generally drawn for acceptance by the buyers of goods. The bills are generally drawn for a period of 3 to 6 months. In practice, the writer of the bill, instead of holding the bill till the date of maturity, prefers to discount them with commercial banks on payment of a charge known as discount.
Bank Overdraft and Cash Credit:Overdraft is a facility extended by the banks to their current account holders for a short-period generally a week.
Advances from Customers:One way of raising funds for short-term requirement is to demand for advance from one’s own customers.
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