Working capital is the difference between a company’s current assets, and inventories of raw materials and finished goods. It gives you an indication of the overall health of your business. It’s a financial indicator which measures whether a company has enough liquid assets to pay its bills.
Positive working capital is a good measure of short-term financial health, as it means there are enough finances to pay short-term bills. Allowing for funding of business growth, which is exactly the direction you want to be heading in.
Overdrafts are a way of providing working capital finance to the business. Which means that the facility will fluctuate with your daily operations. Types of working capital typically include stocking/sales and overheads.
An overdraft is not fixed like a business loan, and interest costs can be less overall. This is due to the overdraft interest only being paid when you are utilising the facility. Overdrafts can also be offset if credit balances are held.
They are also a source of providing quick finance when a business may need to act quickly on a purchase. At a later stage, once your business finances have settled more, our expert team would advise setting up a more structured finance plan.