How to raise short-term working capital for your business

Do you have a business and want short-term working capital but don’t know where or how to get it? Business is full of uncertainties. Risks can occur in your business anytime they require finance.

Four sources of short-term working capital

1.) Your own savings

You can get short-term working capital from your own savings without having to worry about paying interest. But this amount may not be substantial enough to meet all the short-term requirements of your business, as it is generally small.

2.) Apart from long-term loans

The long-term loan you borrowed can be used in part to finance short-term requirements. Sometimes this amount may not be available because it has already been fully used.

3.) Bank loans

Banks are the main short-term money lenders. They lend loans for six months. This means that you have to pay them all of their money plus a certain percentage of interest within six months. You can obtain secured or unsecured loans from them depending on the relationship you have with your bank. You can also request an overdraft or cash credit from your bank.

4.) Accounts receivable

It’s the smartest way to get short-term working capital, especially if your business always sells products on credit. Here, goodwill plays a very important role in driving your business transactions. He sells the products on credit and his clients’ accounts are charged with the same amounts.

Based on your customers’ accounts receivable, you can obtain factor loans or advances. When money is received from factors against these accounts, it is called accounts receivable financing.

Two types of financing receivable

A.) Financing of account receivable ordinary or without notification

This is a short-term financing system. You enter into an agreement with the financial institution that agrees to buy the non-notification or advance you a certain amount of money against said non-notification. Your clients are not intimidated by this arrangement.

B.) Factoring

This is the arrangement whereby the factor purchases accounts receivable (sundry debtors) from its business and assumes all the risk of default. There is an agreement between you and the factor. The factor pays you money against your clients’ debts.

Five differences between non-notification and factoring

1.) Factoring assumes responsibility for bad debts, while failure to notify the seller is responsible for bad debts.

2.) Factoring is responsible for the collection of bad debts while in the absence of notification the seller is responsible for collecting them.

3.) Factoring forwards the invoices to its customers, while without notification it is the seller who sends the invoices to the customers.

4.) In factoring, the customer is informed while in non-notification the customer is not hinted at.

5.) Factoring is the notification of the financing of the accounts receivable, while the ordinary account receivable is the non-notification of the financing of the accounts receivable.