What Really Is Working Capital?

Could it be the air that can keep YOUR business afloat?

A Quick Look At Different Types Of Capital

Share Capital

This is the money that you (or the Founders of YOUR Business) put into the venture to get it off the ground, so to speak.

In the case of a company you would buy Shares in the company to achieve this end. If you retain profits in your company as it develops these profits supplement the amount originally invested. Losses of course would reduce the Capital amount.

Preference Share Capital

Instead of investing into Ordinary Capital of a business, an investor maybe wants the amount paid in to be secured somewhat. Therefore he purchases Preference Shares. This means that this category of shares is secured by a fixed asset like Land and Buildings, which now cannot be disposed of until the holders of the Preference Shares have been paid out first.

Loan Capital

Instead of buying shares sometimes an investor simply prefers to lend money to a developing business to secure the same ends as Share Capital would. In this case he foregoes the right in participating in the profits of the company by way of Dividends, instead he lends the money taking an interest on the amount invested, or he lends free of interest, with specific terms of repayment, or makes no such terms. The Investor can or prefer not to take some form of security from the company to give a sense of safety to the investment.

Working Capital – The Focus Of This Article

The various way that Working Capital can be raised:

Supplier Credit: Many a time Supplier of the raw materials and/or products that you need to to ‘finish’ your business offering could be prepared to sell to you ‘on account’ – this means that the Supplier will deliver the goods you need but only require you to pay in 30, 60, 90 or 120 days time. . . . . This is a very popular way of raising Working Capital for your business.
Bank Credit: A business can apply to a bank for assistance to help the business on its way. Usually what a bank does is to expend a bank Short, Medium or Long Term Loan to the business, or provide the business with an Overdraft Limit allowing the business to overdraw its bank account up to a specific limit. These facilities are usually secured by Directors Guarantees supported by Fixed Deposits held by the directors personally, or their Stocks and Shares that they own, or other Fixed and moveable assets that a Director/s own.
Factoring or Invoice Discounting: What happens here is that Working Capital is raised from the Sundry Debtors in a company (i.e. from the unpaid invoices a company has issued to its Buyers who will/should pay at a future date. Typically here a bank or finance house buys businesses outstanding invoices, so providing the applicant business with an injection of Working Capital enabling it to continue operations. Not only that the Finance House also undertakes to purchase the future invoices in respect of goods sold and delivered to Buyers.
Invoice Financing: This is a facility that some banks prefer to use instead of buying the invoices from a business, their agreement with the applicant is that they will lend funds to the business’ Debtors by controlling the facility through what we call today Modern Working Capital Techniques. Ideally, while banks now use their existing systems many will swing toward the newly created platform that facilitates the creation of Working Capital as time passes. Details in the Resource Box below.
Reverse Factoring: This facility helps a business pay its Suppliers early. This means that a business can proceed with the knowledge that some or all of its Suppliers can be paid early, and that he does not have to worry about continuation of his sources of supply. Not only that the applicant business does not have to keep administration staff on to answer the perpetual requests for early settlement of outstanding amounts due to Suppliers.

Who today provides these Modern Working Capital Techniques?

Some Divisions of banks and specialist Finance Houses do. However, they tend to specialize in one or two of the services.

A really Creative Financier would work in this way:

He would do a thorough assessment of YOUR business, looking at all aspects of it and help you decide what really are the best Working Capital solutions for you.
It is the appropriate solution that will help your business fly!

The way to find out the answer to this question is by contacting us on +27 83 417 0319 or Email nevillesol@icloud.com

To learn more about us click the link: https://mailchi.mp/12cd7f616222/tikvah

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11 April 2025