Working Capital Financing – What It Is And How To Get It?

• Vendor Credit

Vendor financing is a type of credit in which a buyer borrows money from a supplier for his goods and services. Vendor credit allows you to defer payment for goods or services obtained from a supplier or vendor for a certain period of time. Payment conditions might include a discount for early payment or a late payment fee.

• Trade Finance

The tools and products used by businesses to enable international trade and commerce are called trade financing. Trade financing involves a third party in transactions to remove supply and payment concerns. The exporter gets receivables or payments in line with the contract in trade finance, while the importer may be provided credit to complete the trade order.

• Merchant Cash Advances

Merchant cash advances (MCAs) are up-front payments obtained in exchange for a part of future daily credit/debit card receipts. An MCA, rather than a loan, is a sale of future revenue. Although this financing is expensive, it may be the best option for a firm that uses credit cards often but has little or no credit history.

• Working capital revolver

A working capital revolver is a line of credit whose maximum borrowing limit is set by the inventory amount and accounts receivable on a company’s balance sheet. This secured credit line is known as a revolver because money may be borrowed, paid back, and reborrowed frequently. 

• Purchase order financing

A type of commercial finance, purchase order financing offers funds to pay suppliers in advance for confirmed purchase orders. A third party agrees to give a supplier enough money to cover a customer’s purchase order under such an arrangement. Purchase order loans can fund the whole order in certain cases or only a portion of it in others.

• MRP Credit

A monthly recurring revenue (MRP) line of credit is a form of loan product in which the amount that can be borrowed is directly tied to the borrower’s monthly recurring income. Lines of credit are often made available to firms with inventory or accounts receivable to act as security for the loan.

• Customer Advances

The momentary payments made to a company before it offers items or services to its consumers are called customer advances. These advances provide a large source of “no-cost” working capital credit. Of course, the company becomes obligated to supply the items or services to the customer in the future; this obligation is sometimes reflected as a deferred revenue liability on the company’s balance sheet. 

• Accounts Receivable Factoring

By trading unpaid invoices for cash advances, accounts receivable factoring allows businesses to fund a company. A factoring company pays a significant percentage of the outstanding invoice amount, seeks client payment, and then pays the remainder of the debt, less costs. Only businesses that sell on credit terms are eligible for factoring as a funding source. This means that the borrower (the vendor) sells an item (or service) and provides an invoice to the client for payment at a later date. This anticipated future payment is shown on the vendor’s balance sheet as an account receivable (a current asset).