United capital self liquidating loan Chatroulettchat room

Cash credit or bank overdraft is the most useful and appropriate type of working capital financing extensively used by all small and big businesses.It is a facility offered by commercial banks whereby the borrower is sanctioned a particular amount which can be utilized for making his business payments.

A buyer ‘B1’ is buying some products from seller ‘S1’.

In this case, ‘B1’ may acquire bank guarantee from the bank and give it to ‘S1’ to save him from the risk of nonpayment.

The cost of interest would not allow using such loans for temporary working capital.

For more details, we recommend reading For a business, it is another good service provided by commercial banks for working capital financing.

Letter of credit and bank guarantee has a very thin line of difference.

Bank guarantee is revoked and the bank makes payment to the holder in case of non-performance of the opposite party whereas, in the case of a letter of credit, the bank will pay the opposite party as soon as the party performs as per agreed terms.

Working capital financing is done by various modes such as trade credit, cash credit/bank overdraft, working capital loan, purchase of bills/discount of bills, bank guarantee, letter of credit, factoring, commercial paper, inter-corporate deposits etc.

The arrangement of working capital financing forms a major part of the day to day activities of a finance manager.

Every firm generates bills in the normal course of business while selling goods to debtors.

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