The different types of working capital include –
1. Permanent Working Capital
It is also known as fixed working capital or hard core working capital. Every business must allocate a fixed amount of funds as working capital. Available capital must not fall below this threshold. This minimum level of working capital is called permanent or fixed working capital.
2. Temporary Working Capital
The difference between the net working capital and permanent working capital can be termed as temporary or variable working capital. It is also called a variable or fluctuating working capital and changes as per the business’s operations and market situations. Also, it is closely related to the overall sales or production of a business.
3. Gross & Net Working Capital
Gross working capital amounts to business investment allocated for current assets. These assets are easy to convert within the business’s operating cycle.
A business’s net working capital is the difference between gross working capital and current liabilities.
4. Negative Working Capital
Calculation of net working capital results in either a surplus or a deficit. A shortfall or deficit is known as negative working capital and reflects an excess of current liabilities over current assets.
5. Reserve Working Capital
Among the types of working capital, reserve working capital is a type of fund a business maintains over and above the required working capital. Businesses use such funds as a contingency for unexpected market situations or opportunities.
6. Regular Working Capital
It is the minimum working capital a business needs to run its daily operations. Companies must maintain the appropriate level of regular working capital for stable operations.
7. Seasonal Working Capital
Businesses involved in the production or manufacture of products or provide services that have seasonal demands need to maintain a seasonal working capital. It can be considered as a form of reserve working capital but only to adapt with seasonal fluctuations in the market.
8. Special Working Capital
Special working capital is the fund provisioned for business development and similar other functions. The WC is based on the urgent requirement of concern.
Depending on the types of working capital required, a company can opt for additional finance as a working capital loan to maximise the business’s operational efficiency.
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