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The 3 Working Capital Financing Policies

In general, working capital policies involve determining the sources of finance. It also determines the allocation of these finances towards current assets and liabilities. Broadly, three strategies can help optimise working capital financing for a business.

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The 3 Working Capital Financing Policies

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  1. The Three Working Capital Financing Policies Simple | Fast | Reliable

  2. Introduction Proper management of working capital ensures sufficient availability of funds to finance the day-to-day operations of an organisation. In general, working capital policies involve determining the sources of finance. It also determines the allocation of these finances towards current assets and liabilities. Broadly, three strategies can help optimise working capital financing for a business.

  3. Aggressive Policy Involves Maximum Risk Working Capital Financing Policies Conservative Policy Involves Minimum Risk Hedging Policy Bridge Between Maximum and Minimum Risk Copyright © KredX

  4. CONSERVATIVE POLICY Under this policy, the management regulates the credit limits to ensure low risk. Observing a conservative working capital financing policy, leads to underutilisation of funds, thus cutting down on returns and compromising growth. Working Capital Requirement Liquidity Profitability Interest costs are higher, thus profits are lower High-company usually uses long-term finance options. Working capital that needs to be made is substantially high

  5. AGGRESSIVE POLICY When observing this strategy, companies ensure their current assets are minimised. At the same time, management also maintains that payments to creditors are delayed to the furthest. Organisations aiming at accelerated growth can opt for this working capital policy. However, since it involves immense risk, strong business acumen, and deft handling of finances are critical aspects. Working Capital Requirement Liquidity Profitability Highest returns as costs involved are kept to a minimum Low- Company usually uses short-term funds Working capital that needs to be made is notably low

  6. HEDGING POLICY When observing this strategy, companies ensure their current assets are minimised. At the same time, management also maintains that payments to creditors are delayed to the furthest. Organisations aiming at accelerated growth can opt for this working capital policy. However, since it involves immense risk, strong business acumen, and deft handling of finances are critical. Working Capital Requirement Liquidity Profitability Moderate- Balance between idle funds and their cost. Working capital that needs to be made is neither high nor low Profits generated are moderate

  7. TheBottom Line Consider these and other factors relevant to your business judiciously before adopting any particular policy. The growth stage of your company at any point in time can be a significant consideration when adopting the working capital financing policy.

  8. Thank You Info@kredx.com www.kredx.com +91 8892043534 Delhi Bangalore Mumbai Simple | Fast | Reliable Apeejay Business Centre,6th Floor, Arunachal Building, 19 Barakhamba Road, Connaught Place, New Delhi - 110001 Ground Floor, Tower A, Salarpuria Softzone, Wing 'a, Outer Ring Rd, Bellandur, Bangalore - 560103 Wework, 14th Floor, 247 Park, Vikhroli West, Mumbai, Maharashtra - 400079

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