Once the financial manager has estimated to invest in current assets like raw material, working-in-progress, finished goods, debtors etc.
Once the financial manager has
estimated to invest in current assets like raw material, working-in-progress,
finished goods, debtors etc. the next step is, he must arrange for funds for
capital management refers not only to estimating working capital requirement
but also includes the process of bifurcating the total working capital
requirement into permanent working capital and temporary working capital. The
permanent working capital should be financed by arranging funds from long-term
sources such as issue of shares, debentures and long-term loans. Financing of
working capital from long term resources provide the following benefits:
The temporary working capital
requirement should be financed from short-term sources such as borrowing loan
from banks, creditors, factoring etc. The financing of working capital through
short-term sources of funds has the benefit of lower cost and establishing close relationship with the banks.
The finance manager has to make use of both long-term
and short-term sources of funds in a way that the overall cost of working capital is the lowest and the funds are
available on time and for the period they are really needed. Before going to
see in detail about working capital finance, first let us see what the
different sources of finance available are for the company and also see what
are the sources particularly available to working capital.
Tags : Financial Management - WORKING CAPITAL MANAGEMENT
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