Working capital finance is useful for business. It is often used for specific growth of project as various modes of trade credit. It is usually calculate based on the cash , assets that can be quickly converted to cash like invoice from debtors and expenses that will be due in a year. Working capital loan are generally short or medium term to boost cash for business growth. Bank overdraft or cash credit , purchase of bill discounting of , bank guarantee , letter of intent are traditionally been useful source of working capital. Business vintages & good cibil score is good for this.

Your business gain extend with payment terms , business continuity , improved liquidity and business continuity. it is basically indicates the short term financial position of an organization.and is also a measurement of its overall efficiency. Working capital loan is obtained by subtracking the current liabilities from the current assets. The ratio whether the company possesses sufficient assets to cover its short term debt.

Working capital indicates the liquidity level of company for managing day to day expenses and cover inventory like cash account payable, account receivable , and short term debt that is due. Working capital is derived from several company operation such as debt and inventory management supplier payments and collections of revenues.

Features of short term finance -

1. Cash credit or Bank Overdraft :

Its is a facility provide by commercial banks whereby the borrower is sanctioned a particular amount which can be utilized for making his business payments. The borrower has to make sure that he does not cross the sanctioned limit. The best part is that the interest is charged to the extent the money is used and not on the sanctioned amount which motivates him to keep depositing the amount as soon as possible to save on interest cost. Without a doubt, this is a cost-effective working capital financing.

2. Purchase or Bill discount :

It is offered by commercial banks for working capital financing. Every firm generates bills in the normal course of business while selling goods to debtors. Ultimately, that bill acts as a document to receive payment from the debtor. The seller who requires money will approach the bank with that bill and bank will apply the discount on the total amount of the bill based on the prevailing interest rates and pay the remaining amount to the seller. On the date of maturity of that bill, the bank will approach the debtor and collect the money from him.

3. Bank Guarantee :

It is primarily known as non-fund based working capital financing. Bank guarantee is acquired by a buyer or seller to reduce the risk of loss to the opposite party due to non-performance of the agreed task which may be repaying the money or providing of some services etc.Bank charges some commission for same and may also ask for security. It is revoked by the holder only in case of non-performance by the other party

4. Letter of Credit :

It's is non-fund based working capital financing. Letter of credit and bank guarantee has a very thin line of difference. Bank guarantee is revoked and the bank makes payment to the holder in case of non-performance of the opposite party whereas, in the case of a letter of credit, the bank will pay the opposite party as soon as the party performs as per agreed terms. So, a buyer would buy a letter of credit and send it to the seller. Once the seller sends the goods as per the agreement, the bank would pay the seller and collects that money from the buyer.