Working capital finance is a way to (temporarily) increase the working capital of a company by means of a credit facility or other short-term financing form. In addition, it can also be a way to mitigate payment and trading risks.
Companies attract working capital finance for a variety of reasons. On the one hand, it can be used to compensate for a temporary liquidity shortage, for example in companies that often have to deal with seasonal fluctuations. On the other hand, it is often used for growth projects, such as launching a new proposition, entering a new market or realizing a large investment. Investments made using working capital financing generally pay for themselves in the short to medium term.
Outstanding receivables from debtors place a large burden on your company's working capital. Debtor financing offers the solution for this. It is a flexible credit that varies between 60 and 90 percent of your outstanding debtors. If your turnover and with it your debtor portfolio increases, your credit capacity will automatically increase.
Inventories also have a significant impact on the capital requirement. Stock financing can therefore offer a solution. With stock financing, you free up capital that is tied up in your stock. The amount of stock financing depends on the type of stock and the nature of your customers and varies between 30% and 80% of your stock.
This flexible form of financing offers your supplier the security of payment and you have security of delivery. This security makes it possible, for example, to negotiate purchase discounts that cannot or only partially be realized without purchase financing. In this way you create working capital that you can use for other purposes.
In a letter of credit, also known as documentary credit, the buyer's bank guarantees payment to the seller if certain criteria are met. Documentary collections, similar to letters of credit, reduce payment risks in international commercial transactions and a bank guarantee covers your obligations to third parties.
In addition to the financing solutions mentioned above, there is of course also the credit facility, which you can use when needed. That means you can leave the credit untouched for weeks, but withdraw it immediately if necessary. That makes a revolving credit a good buffer.
RD+P has years of experience in financing and optimizing working capital (risks) and helps you find the right financing.
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