Types of Working Capital:
Working capital denotes the difference between the current
assets and short-term obligations of an organisation. Every
business enterprise depends on this variable factor to carry out
its day-to-day operations, which ultimately forms the basis of
its survival and growth.
is widely regarded as a crucial indicator of a business’s
operational competency and growth potential as well. Its proper
management can drive a business’s success. It is thus also
critical to understand the
different types of working capital if you are
running a business.
The Different Types Of Working Capital:
Working capital is differentiated on two primary bases –
namely, periodicity and concept. The
working capital types are elaborated in the
Based on Operating Cycle:
Permanent Working Capital:
An organisation requires a specific sum of
to ensure that its day-to-day operations continue to run
efficiently without any interruption. It is a part of the
current assets that remains tied up continually. Such an amount
is defined as permanent working capital.
It’s also known as fixed working capital. The amount of
fixed working capital occupied in a business depends on its
scale and stage of growth. A small-scale enterprise will
naturally require reduced permanent working capital to keep its
operations afloat compared to a large-scale one.
It can be further divided into two
different types of working capital
It is a part of the permanent working capital that a business
requires for its daily operations. It involves payment of wages,
financing of overheads, raw material purchase, etc.
Any insufficiency in regular working capital can lead to
operational hindrance, causing significant loss of resources.
Hence, several business owners opt for external funding options
to ensure a smooth cash flow.
Reserve Margin Working Capital:
Businesses also maintain a cash reserve for contingencies,
called the reserve margin working capital. It is kept aside from
the regular working capital to ensure that an organisation can
mitigate contingent risks efficiently.
With KredX, India’s leading integrated
solutions provider, you can utilise the unpaid
debtors to secure external funding within 24 – 72 hours*
for immediate working capital funding. It helps you deal with
any business emergencies conveniently.
Variable Working Capital:
It is a part of the short-term finances that a business requires
for a temporary period. Thus, it’s also called
temporary working capital. Contrary to
permanent working capital, this type fluctuates throughout the
It is a broad term, with two primary subsets. These are:
Special Variable Working Capital:
It refers to the additional capital that an organisation
requires to meet unique and even unprecedented expenditures.
Businesses utilise special variable working capital to finance
marketing campaigns, introduce new product lines, or deal with
unusual events, like natural calamities, riots, etc.
Seasonal Variable Working Capital:
Certain businesses witness increased demand during specific
seasons. For instance, a raincoat supplier will see heightened
demand during the monsoon. Such instances lead to additional
fund requirement known as seasonal variable working capital.
Business owners often resort to external financing in order to
meet such working capital needs.
Based on Concept:
It refers to the sum of a business’s total current assets
and includes the following components –
- Cash and cash equivalents
- Short-term investments
- Marketable securities
Gross working capital
does not indicate the operational competency of a business since
it does not show whether the current assets are sufficient to
mitigate short-term liabilities.
Between the two
different types of working capital based on the
concept, this one’s more widely regarded. It refers to the
difference between current assets and short-term liabilities of
a business. It can be either positive or negative. Typically, a
positive net working capital represents operational competency
and growth prospects.
These are the few working capital types based
on periodicity and concept. Being aware of all these types
facilitates better management of the business. It also becomes
easier to choose suitable funding options.
You can streamline your business’s operating cycle by
invoice discounting services
from KredX, which offers cash advances against your
business’s unsettled invoices without any mortgage or
Working capital of a business depends on the
- Business cycle
- Nature and scale of organisation
- Seasonal demands
- Production cycle
You can opt for facilities like a working capital
loan, invoice discounting, business credit card,
etc. KredX provides funding for working capital
needs via its invoice discounting services
typically within 24-72 hours*.
External funding allows you more financial
liberty. With external financing, you can upscale
business operations, optimise cash conversion
cycle, and address emergencies with ease.