Bank Theory

Working Capital Management | Bank Theory Working Capital Management Working Capital refers to the capital required for the day-to-day operations of a business. It is defined as the difference between current assets and current liabilities. Effective management of working capital ensures liquidity, solvency, and profitability. Working Capital Cycle (WCC) The Working Capital Cycle represents the time it takes for a business to convert its net current assets into cash. It is the sum of the inventory holding period and receivables collection period minus the payables payment period. Example: A firm holds inventory for 60 days, receives payment from customers in 30 days, and pays suppliers in 45 days. WCC = 60 + 30 - 45 = 45 days. Cash and Marketable Securities Firms hold cash for transactional, precautionary, and speculative purposes. Marketable securities are short-term instruments that are easily convertible to cash, like T-bills and CPs. ...

Factoring, Forfaiting & Trade Receivables Discounting System (TReDS) What is Factoring? Factoring is a financial service where a business sells its accounts receivables (invoices) to a third party (called a factor) at a discount to obtain immediate cash flow. This helps companies improve liquidity without waiting for the payment terms to mature. History of Factoring The concept of factoring dates back to ancient Mesopotamia (around 2000 BC), where traders used agents to collect payments. Modern factoring developed during the 14th century in England, supporting the wool industry. In the United States, factoring became popular in the 19th century, particularly in the textile industry. Types of Factoring Recourse Factoring: The seller bears the risk if the customer fails to pay. Non-recourse Factoring: The factor bears the risk of non-payment. Domestic Factoring: Both the client and customers are b...