Once core funding is in place, many companies turn to working capital financing to support their growth-related operations and capital requirements. The most frequently used working capital financing tools are traditional credit spreads and factoring.
Traditional credit margins allow organizations to release capital by providing access to a portion of the capital used to support inventory and accounts receivable from customers. As a general rule, the line of credit granted can represent the equivalent of approximately 2 months of turnover and the amount available variate according to the level of inventory and accounts receivable of less than 60 days.
Factoring is a short-term financing process that provides immediate cash based solely on the value of accounts receivable or purchase orders and short-term negotiable contracts. The amount of financing granted varies according to the credit rating of the customer to whom the organization sells its product or service. The credit facility is granted for each order, purchase order or short-term contract individually, and each new credit requirement necesitates a new agreement.