What Is Working Capital Management, Types and Importance?

Working capital management is utilising the working capital in the best way possible. Read on to know about working capital management only at IIFL finance.

11 Sep,2022 11:19 IST 89 views
What Is Working Capital Management, Types and Importance?

Working capital is the amount a business needs to cover its day-to-day expenses, termed current short-term liabilities. Business owners utilize the working capital to pay for current expenses such as rent, employee salaries, etc.

Working capital is calculated by subtracting the rupee value of the business's current liabilities from the rupee value of the current assets. It is one of the most significant funds needed for a business to sustain itself long-term.

What Is Working Capital Management?

Working capital management is a process of utilizing the working capital of a business in the best way possible to ensure a positive cash flow and effective operation. The main aim is to monitor the business’s assets and liabilities, manage them effectively, and have enough cash to meet the business’ current and short-term liabilities.

Types Of Working Capital Management

Managing the working capital is based on Current assets and Current liabilities. Here are the types of working capital management that you can understand through the following two terms:

1. Current Assets

They have a short life span and are utilized to execute the company's current operations. Current assets are used for operations within a financial year, i.e., twelve months. Here, the monetary value of the asset is managed in such a way that it is higher than the current debt, leaving the business to have a positive cash flow that the business could use for fulfilling the day-to-day expenses.

2. Current Liabilities

These include the monetary value of a business’ current and short-term obligations, such as rent or employee salaries which the business is legally liable to pay. Businesses manage the current liabilities to ensure the value is lower than that of current assets to ensure positive cash flow.

Importance Of Working Capital Management

Working Capital management is crucial as it ensures that a business will have positive cash flow and enough cash to pay for the current and short-term liabilities. As the business is legally liable to pay for such expenses, working capital management provides effective sustainability for the business and executes its business operations smoothly.

Avail Of A Business Loan From IIFL Finance

IIFL Finance is India’s leading company that offers financial services with a particular focus on customised and comprehensive business loans, which you can use to fulfill the working capital requirements. IIFL Finance business loan offers instant funds up to Rs 30 lakh with a quick disbursal process. The business loan application process is entirely online with minimal paperwork. The loan’s interest rate is attractive and affordable to ensure the repayment doesn’t create a financial burden.

FAQs:

Q:1: Can I use the business loan amount to fulfill my working capital requirements?
Ans: Yes, you can use the IIFL Finance business loan to satisfy the working capital requirements and ensure a positive cash flow.

Q.2: How long does it take for the IIFL Finance loan disbursal?
Ans: IIFL Finance business loan is typically disbursed within 48 hours of loan approval.

Q.3: Do I need collateral for taking a loan for business from IIFL?
Ans: No, IIFL Finance loan for business does not require the need to pledge any asset as collateral.

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