Working capital is raised througha)All of the options.b)Commercial paperc)Factoringd)Trade creditCorrect answer is option 'A'. Can you explain this answer?

Question

Answer

Working capital is the amount of liquid assets (in cash or accessible as cash) to run and grow your business. Start-up capital (which serves as working capital) should cover business expenses for at least one year or until the business can generate enough revenue to sustain itself.

Answer

Working capital is what fuels every business. And the mantra behind having sufficient funds is to strike the right balance between your assets and your liabilities.
Trade credit: It’s important to maintain a good rapport with your trade creditors. They provide trade credit in the form of business supplies and equipment that can be paid for at a later date.
Commercial Paper is one of the modes of raising the funds for short term purpose. Commercial Papers fulfil the short-term capital requirement of the Corporate and diversify the source of financing.
One of the most common alternatives businesses for needing liquidity is factoring, which involves a third party, the factor, purchasing corporate account receivables and providing nearly the full outstanding invoice amount as immediate cash to cover urgent commitments, operational activities and to develop the business.

Answer

Understanding Working Capital
Working capital refers to the funds necessary for a company to cover its short-term liabilities and operational expenses. Raising working capital is crucial for maintaining liquidity and ensuring smooth business operations.
Sources of Working Capital
Working capital can be raised through various means, each contributing to a business’s financial health. Here are key sources:

Commercial Paper: This is a short-term, unsecured promissory note issued by companies to raise funds for working capital needs. It usually has a maturity of 1 to 270 days and is a reliable option for large corporations.
Factoring: This involves selling accounts receivable to a third party (factor) at a discount to obtain immediate cash. This can significantly improve cash flow, enabling businesses to manage their working capital effectively.
Trade Credit: This is an arrangement where suppliers allow businesses to purchase goods or services and pay for them later. This effectively provides short-term financing, enhancing liquidity without immediate cash outflow.

Conclusion
All the mentioned options—commercial paper, factoring, and trade credit—are legitimate methods to raise working capital. Therefore, option 'A' (All of the options) is correct because it encompasses all these methods. By utilizing these various sources, businesses can ensure they have adequate working capital to meet operational demands and facilitate growth.

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