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What does working capital mean to your business?


Working capital is the net amount of current assets, without the total amount current liabilities at a certain point in time. If an organisation’s balance sheet shows current assets of £150,000 and current liabilities of £120,000, this organisation’s working capital is £30,000. 

- What do businesses pay with their working capital?

Any day-to-day trading operation: suppliers, collaborators and all their creditors.

- What financial ratios related to working capital should be watched to make sure the business is not running out of cash?

Working capital-related ratios that should be monitored include day sales in accounts receivable, quick ratio, current ratio, accounts receivable turnover ratio, days sales in inventory and inventory turnover ratio.

- Why is working capital does not always mean available cash?

Businesses may enjoy large amounts of working capital, and face difficulties when their current assets fail to be cashed in. Such illiquid assets can be inventory, or receivables like uncollected invoices. Collecting unpaid invoices, either on your own or on your behalf with factors, therefore represents a genuine way of financing a business.

- What are the available short-term working capital financing solutions?

There’s a number of ways a business can finance its working capital. Some are financed by the client, like advances. Some are financial products offered by banks or financial institutions like overdraft, invoice discounting, factoring, instalment credit, commercial papers, trade finance, equity finance, loans, etc.

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An additional question: Respond to this Question

  • Why turn to a factor rather than seek a bank loan?
  • How does a factoring finance arrangement work?
  • Who collects the debt due, the factor or my business?
  • What's the difference between factoring with recourse and factoring without recourse?
  • Does factoring require a minimum number of invoices?
  • What does a factoring company do in the case of nonpayment?
  • Do my customers know of the factor’s involvement?
  • What are the requirements for invoice discounting?
  • Is there any collateral requirement for factoring?
  • How quickly can I access cash for the invoices I sell to a factor?
  • Who do I turn to if I have a dispute with my factoring company?
  • I have overseas clients; can I factor international invoices?
  • Is it easy to terminate a factoring arrangement?
  • What regulations apply to factoring companies?
  • What is the difference between factoring and bill discounting?
  • What is credit insurance?
  • What is export factoring?
  • What is the difference between invoice factoring and merchant cash advance?
  • What is the difference between factoring and securitisation?