What You Need To Know About Working Capital

Working finance is the difference between a business’s current assets and liabilities. It is the amount of money that a business has at hand to pay for urgent expenses such as paying a short-term debt, acquiring stock and paying for operating expenses. Therefore, sufficient capital is essential for smooth operations in any business.  Funds available to a business can either be negative or positive. Positive cash in hand is preferable because it means that a business has money at any given moment to cover for any expenses that may arise during business operations. However, a business that consistently has excessive cash lying idle means that it is not utilizing its assets well. It is prudent for businesses to invest extra funds in profitable ventures.

Benefits of Working Capital

There are a number of benefits of having cash at your disposal to use when the need arises. Having enough funds ensures that a business can pay all its expenses on time. These expenses could be employee salaries or even paying the water bills. The business is also able to pay its debts on time and therefore avoid defaulting. Having working capital enables a business to take advantages of opportunities that may arise during normal business operations. For instance, if there is a sudden increase in demand for a certain type of product that the business had not anticipated, then a business can use the funds at hand to acquire extra stock. Having a large amount of funds often indicates a healthy business and makes it easier to attract investors and also access to affordable financing.

How a Business Can Access Finance

There are various options available to businesses that require working finance. Having a working loan/funding eases financial burden as it enables a business to cater for any financial needs that may arise and therefore ensure smooth operations continue. Having a bank overdraft facility is one of the easiest ways of accessing working funds. The main advantage of this loan facility is that the business only pays interest on the amount of money that is overdrawn. A business can also apply for a short-term business loan that is unsecured and has fixed interest. Short term loans enable businesses to manage their working funds much better as funds are readily available.  A business can also access funds from equity funding. Such funds are investments from family or friends or could even include home equity loans. The main advantage of such kinds of loans is that a business does not need to have a good financial history to secure them and therefore they are an excellent option for businesses that are in their infancy. Businesses can also ask suppliers to offer them trade credit facilities. Such credit facilities are offered by suppliers when businesses place bulk orders. A supplier will often conduct a thorough review of a business’s credit history before issuing a trade credit facility. It is essential that a business has a good financial history for it to exploit trade credit facilities and enhance its working funds.