Working Capital Management

Fixed working capital is that portion of the total capital that is required to be maintained in the business on the permanent basis or uninterrupted basis. This working capital is required to invest in fixed assets. The requirement of this type of working capital is unaffected due to the changes in the level of activity.

The sources used for financing temporary requirement of working capital are:

1) Spontaneous Sources

a. Trade Credit

b. Outstanding Expenses

2) Inter Corporate Deposits

3) Commercial Papers

4) Banks

5) Advances received form customers

6) Various short term provisions

7) Fixed deposits for a period of 1 year or less

Variable working capital is that portion of the total capital that is required over and above the fixed working capital. This working capital is required to meet the seasonal needs and some contingencies. The requirement of this type of working capital changes with the changes in the level of activity.