What are the types of working capital policies?
There are certain policies that are followed when calculating and managing working capital. The most commonly followed working capital policies are:
1. Aggressive policy
As the name suggests, this policy is a high-risk one and is mainly followed by companies looking for brisk growth. Owing to the risk factors, returns are also higher. To follow this, a business must minimise its current assets or the debt it is owed. Here, there are no debtors as payments are collected in time and are eventually invested in businesses. Creditors’ payments are delayed to the maximum. Doing so may provide possibilities to sell out company assets to clear debts.
2. Conservative policy
Businesses with a low-risk appetite are inclined towards such a policy. Credit limits are pre-set to a specific amount in this policy, and these enterprises refrain from doing business on credit. Generally, a conservative working capital policy is followed to keep the company assets and liabilities in sync with each other, with the assets valuing on the higher side in case of sudden difficulties.
3. Matching policy
This is a hybrid between a working capital management policy and a working capital financing policy. Businesses generally follow this policy when they want to maintain minimal working capital by utilising funds elsewhere. Here, the current assets of the balance sheet are matched with the current liabilities and less cash is kept in hand. This enables the rest of the finance to expand the business, increase production, and more.
As per your enterprise’s working capital financing policy, select a working capital loan and meet short or long-term expenses with ease.