Types of financing include a term loan, commercial line of credit, or invoice financing, a form of short-term borrowing that a lender grants to its business customers based on unpaid invoices. Business credit cards that allow you to earn rewards can also provide access to working capital. Working capital financing is done through various modes such as trade credit, cash credit/bank overdraft, working capital loan, purchase of invoices/invoice discount, bank guarantee, letter of credit, factoring, commercial paper, corporate deposits, etc. Sometimes a company does not have sufficient cash to cover the daily operating costs and therefore gets a loan for this purpose. Companies with high seasonality or cyclical sales can count on working capital loans to help in times of reduced business activity. It is mainly known as non-fund-based working capital financing. The bank guarantee is purchased by a buyer or seller in order to reduce the risk of loss for the counterparty due to the non-performance of the agreed task, which may be the repayment of money or the provision of certain services, etc. A buyer `B1` buys certain products from the seller `S1`. In this case, „B1“ can buy a bank guarantee from the bank and give it to „S1“ to protect it from the risk of non-payment. Similarly, if „S1“ can buy a bank guarantee and hand it over to „B1“ to protect it from the risk of receiving inferior goods or delay in delivery of goods, etc. Essentially, a bank guarantee is revoked by the holder only in the event of non-performance by the other party. The bank charges a certain commission for the same and can also ask for a guarantee. Cash advances or bank overdrafts are the most useful and appropriate type of working capital financing, which is widely used by all small and large businesses.

This is a facility offered by commercial banks where the borrower sanctions a certain amount that can be used for his commercial payments. The borrower must ensure that he does not exceed the sanctioned limit. The best part is that interest is calculated to the extent that the money is used, and not on the amount sanctioned, which motivates him to deposit the amount as soon as possible to save on interest charges. Undoubtedly, this is low-cost working capital financing. For a company, this is another good service from commercial banks for working capital financing. Each company generates invoices in the normal course of business while selling goods to debtors. Ultimately, this invoice acts as a document to receive payment from the debtor. The seller who needs money will contact the bank with this invoice and the bank will apply the discount on the total amount of the invoice according to the applicable interest rates and pay the remaining amount to the seller. On the due date of this invoice, the bank will contact the debtor and withdraw the money. Missed payments for a working capital loan can affect the business owner`s creditworthiness if the loan is tied to their personal loan. Mediation of working capital financing is an essential part of a financial manager`s day-to-day work.

This is a very important activity that requires continuous attention, as working capital is the money that ensures the smooth running of day-to-day business operations. Without adequate and adequate working capital financing, a company can get into trouble. Insufficient working capital may result in some contributions not being paid on time. An inappropriate method of financing would result in loss of interest that would directly affect the company`s profits. It is simply the duration of the loan extended by the company`s creditor. .