Texas Working Capital Financing

Written by Patricia Tunstall
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The basic definition of working capital is current assets minus current liabilities. This simplistic definition does not hint at the complex management problems that are inherent in the concepts. To start with, any owner or manager must manage the business's cash flow, which provides the vigor necessary for growth.

Cash Flow and Working Capital

A business may make a profit and still be cash-poor to such an extent it cannot finance any significant expansion. The items that contribute to cash flow are payables (what you owe to your creditors), equity financing, and debt (loans). Items that tie up cash flow are accounts receivable and inventory. Although it may seem a simple matter to balance these items to keep a business operating, any owner/manager can attest to the difficulty of maintaining a growing business.

Your working capital pays your short-term obligations, such as regular bills. If you can pay your creditors and buy enough inventory, but your working capital shrinks below a certain point, you run the risk of not having enough cash to operate. Should the cash flow problem affect your ability to pay your short-term bills, then you have a credit and credibility problem.

Any business manager understands that, in order to protect cash flow, accounts receivable and inventory must be controlled. Both represent cash that is not available to operate the business. When cash flow starts to dwindle dangerously, and working capital begins to dry up, a business probably does not qualify for a bank loan. Texas working capital financing, however, can alleviate this temporary crisis by advancing cash for the accounts receivable you choose to sell.


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