Most businesses need financing for purchasing, production, payroll, rent, distribution and other operating costs. The challenge is to determine the most advantageous methods of raising working capital.
Commercial line of credit
The most common form of operating financing is a commercial line of credit, or overdraft facility. It is an account with an agreed-upon credit limit up to which your business can draw cash. Interest is charged at an agreed margin over the Bank's base rate and varies depending on market conditions. Since it may be difficult to provide concrete collateral for a line of credit, banks often require that businesses regularly deposit their turnover into the account.
Invoice finance
With invoice finance (also called invoice discounting or factoring), a company can finance its operations by providing its debtors as collateral. The period before payments for goods and services is due often varies. In some cases, payment is due in 8-14 days, and in others 90 days or more. If your company offers long payment deadlines, you are more likely to need working capital financing, and invoice finance is a possible solution.