A large-scale manufacturing concern taps various sources to meet its working capital requirements. A company may choose to finance its current assets by long-term or short-term sources, or a combination of them. Long-term and short-term sources of working capital have been examined below:

1. Long Term Source or Permanent Working Capital

2. Short Term Source or Temporary Working Capital


Long-term Sources of Permanent Working Capital

The long-term sources of working capital include equity and preference shares, retained earnings, debentures, and other long-term debts from public deposits and financial institutions. The long-term or permanent working capital requirements should be met through long-term sources. The financing of working capital through long-term sources of funds is generally costlier than that of short-term sources of funds. However, financing of working capital from long-term sources provides stability, reduces risk of repayment and increases the liquidity of the business concern. Various long-term sources of working capital are as follows:

1. Issue of Shares

2. Retained Earnings

3. Issue of Debentures

4. Long-term Debts

Short-term Sources of Temporary Working Capital:

Temporary or variable working capital is needed for meeting the short-term or seasonal needs of current assets. The variable working capital should be financed from short-term sources of funds and only for the period needed. The financing of working capital through short-term sources has the benefits of lower cost and establishing close relationships with the banks. Short-term financing of working capital funds also provides flexibility to the firm, particularly when the need for current assets is cyclical or seasonal. The short-term sources of financing the variable working capital requirements are mainly banks, public deposits, depreciation credit, credit papers, loans from directors, and government assistance. A brief description of each of these sources of short-term.n working capital is given below:

1. Commercial Banks

2. Public Deposits

3. Trade Credit

4. Business Credit Papers

5. Customer's Credit

6. Financial Institutions

7. Government Assistance

8. Indigenous Bankers

9. Depreciation Funds

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