Working Capital Financing
Short definition
Working-capital financing is the mix that funds the OWC need: trade payables, factoring, revolvers, the cash buffer and equity. Tenor should match whether the need is permanent or seasonal.
Detailed explanation
Fund the permanent need with term resources or equity; fund the seasonal peak with a short line or reverse factoring. Funding permanent OWC with short loans is a maturity mismatch; each rollover is refinancing risk.
A cost ranking misleads: supplier credit looks free, factoring looks expensive; lost discounts and true sale of receivables change the all-in cost. Collateral (AR, inventory) binds the limit.
Why it matters for the CFO
The wrong tenor sentences a profitable firm to an annual rollover. In a high-rate regime the rollover cost of a short line can exceed a term structure.
How to read it
Financing / WCR below 1 means the buffer or equity is filling the gap. Above 1 is over-borrowing or a definition slip. Thresholds move with sector and season.
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Definitions are educational. They are not investment, credit or tax advice.