What are the different types of working capital?
Working capital helps in running business operations smoothly. The different types of working capital include the following.
1. Permanent working capital
The minimum working capital required for a business is called permanent, fixed, or hardcore working capital. The available amount must not fall below this allocated threshold for smooth operations.
2. Gross and net working capital
Gross working capital amounts to the business investment allocated for current assets. It is easy to convert these assets into cash within the business’s operating cycle. A business’s net working capital is the difference between gross working capital and current liabilities.
3. Temporary working capital
Temporary or variable working capital is the difference between networking and permanent working capital, closely related to the overall sales and production. It is also called fluctuating working capital as it changes as per the business operations and market.
4. Negative working capital
When calculating the networking capital, it either leads to a surplus or a deficit. A shortfall or deficit is negative working capital and reflects an excess of current liabilities over current assets.
5. Reserve working capital
Reserve working capital is a type of fund a business maintains over and above the required working capital. Companies use such funds as a contingency for unexpected market situations or opportunities.
6. Regular working capital
Regular working capital is the minimum working capital that a business needs to run its daily operations. Companies must maintain the appropriate level of average working capital for stable operations.
7. Seasonal working capital
Businesses producing products or providing services with seasonal demands need to maintain a seasonal working capital. It is considered a form of reserve working capital, but only to adapt to seasonal fluctuations in the market.
8. Special working capital
Special working capital is the fund for business development and other urgent functions based on requirements and circumstances.
Depending on the type of working capital required, you can opt for additional finance as a working capital loan to maximise the operational efficiency of your business. Our working capital loan of up to Rs. 55 lakh is easy to apply for as it comes with simple eligibility requirements and minimal documents.
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Frequently asked questions
The three types of working capital are permanent working capital, temporary working capital, and negative working capital. Permanent working capital is the minimum number of current assets required to run a business. Temporary working capital is the additional number of current assets needed to meet seasonal or cyclical demand. Negative working capital is when current liabilities exceed current assets, indicating a short-term liquidity problem.
Yes, there are different types of capital. Capital is broadly classified into:
- Financial capital is the money or other assets that can be used for investment or production.
- Economic capital is the amount of money that a company needs to ensure its stability and cover its risks.
- Constructed or manufactured capital is the physical infrastructure and equipment that enable economic activity.
- Human capital: is the skills, knowledge, and abilities of people that contribute to their productivity and well-being.
The working capital cycle (WCC) is the amount of time that it takes to turn the net current assets and current liabilities into cash. It measures the efficiency and liquidity of a business. The shorter the WCC, the faster the business can free up its cash from working capital. The longer the WCC, the more cash is tied up in working capital without earning a return. The WCC formula is inventory days + receivable days - payable days.
