{"id":5968,"date":"2022-11-21T10:22:02","date_gmt":"2022-11-21T10:22:02","guid":{"rendered":"https:\/\/www.indifi.com\/blog\/?p=5968"},"modified":"2026-06-16T10:44:47","modified_gmt":"2026-06-16T10:44:47","slug":"types-of-working-capital-in-india","status":"publish","type":"post","link":"https:\/\/www.indifi.com\/blog\/types-of-working-capital-in-india\/","title":{"rendered":"Types Of Working Capital In India &#8211; Capital Cycle, How to Calculate"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><em>Struggling to manage funds for your business &amp; don&#8217;t know which types of working capital would be best for you?<\/em> If so, you&#8217;ve just landed at the right place.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It is quite obvious that running a business is no piece of the cake. You have to manage a ton of things together. You have employees to manage, investments to make, and draw profits at the end of the day. The slightest slip can break down your entire empire.&nbsp;<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"397\" height=\"300\" src=\"https:\/\/www.indifi.com\/blog\/wp-content\/uploads\/2022\/11\/types-of-working-capital.jpg\" alt=\"types-of-working-capital and cycle\" class=\"wp-image-5969\"\/><\/figure><\/div>\n\n\n\n<p class=\"wp-block-paragraph\">With that in mind, have you thought about the most crucial element behind all these?&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Yes, you have guessed it right. It&#8217;s the working capital, aka the funds you need to run your day-to-day business. It may include rent, debt repayments, payroll, and whatnot.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Now, I guess you know that it is possible to apply for working capital loans if you are facing a shortage of funds. These loans can help you carry on your business. Keep scrolling to learn how!<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><br>Also, we will be learning about the types of working capital management today. So, <em>let&#8217;s dig in\u2026<\/em><\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.indifi.com\/blog\/types-of-working-capital-in-india\/#What_is_Working_Capital\" >What is Working Capital?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.indifi.com\/blog\/types-of-working-capital-in-india\/#Types_of_Working_CapitalManagement\" >Types of Working Capital\/Management<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.indifi.com\/blog\/types-of-working-capital-in-india\/#Permanent_Working_Capital\" >Permanent Working Capital<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.indifi.com\/blog\/types-of-working-capital-in-india\/#Consistent_Working_Capital\" >Consistent Working Capital<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.indifi.com\/blog\/types-of-working-capital-in-india\/#Variable_Working_capital\" >Variable Working capital<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.indifi.com\/blog\/types-of-working-capital-in-india\/#Reserve_Margin_Capital_Working\" >Reserve Margin Capital Working<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.indifi.com\/blog\/types-of-working-capital-in-india\/#Seasonal_Variable_Working_Capital\" >Seasonal Variable Working Capital<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.indifi.com\/blog\/types-of-working-capital-in-india\/#Short-term_loan\" >Short-term loan&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.indifi.com\/blog\/types-of-working-capital-in-india\/#Bank_overdraft_facility_or_credit_line\" >Bank overdraft facility or credit line&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.indifi.com\/blog\/types-of-working-capital-in-india\/#Trade_Credit\" >Trade Credit<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.indifi.com\/blog\/types-of-working-capital-in-india\/#Account_Receivables\" >Account Receivables&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.indifi.com\/blog\/types-of-working-capital-in-india\/#Bank_Guarantee\" >Bank Guarantee&nbsp;<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.indifi.com\/blog\/types-of-working-capital-in-india\/#Working_Capital_Cycle_What_is_it\" >Working Capital Cycle: What is it?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/www.indifi.com\/blog\/types-of-working-capital-in-india\/#How_to_Calculate_Working_Capital_Cycle\" >How to Calculate Working Capital Cycle?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/www.indifi.com\/blog\/types-of-working-capital-in-india\/#Wrapping_Up\" >Wrapping Up<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_Working_Capital\"><\/span>What is Working Capital?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">It reflects the liquidity available to manage your daily business operations. For starters, the current liabilities are subtracted from current assets to determine working capital.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A company works hard to have positive working capital. A lack of working capital shows a business&#8217;s inability to meet short-term responsibilities. This might affect operations negatively.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">So, managing working capital is crucial for maintaining sufficient funds. It should neither be excessive nor insufficient.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Types_of_Working_CapitalManagement\"><\/span>Types of Working Capital\/Management<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">These are the different types of working capital available in India. Have a look-<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Permanent_Working_Capital\"><\/span>Permanent Working Capital<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">It is also known as fixed working capital. This is the fund that a company plans to maintain in-hand year after year. A small amount of working capital is needed to meet all current liabilities. It also helps in maintaining the smooth functioning of your firm.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Permanent capital is seen to be of utmost importance to enterprises. The size of permanent working capital varies with the relative size of the firm. It must be increased as the size of the business expands.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Lower fixed capital denotes a firm with less financial flexibility and operational effectiveness.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Consistent_Working_Capital\"><\/span>Consistent Working Capital<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">It is the least amount of capital your company needs. This helps to finance its day-to-day operations.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For instance, this capital can cover your costs incurred to process raw materials, operational costs, etc.&nbsp;<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Variable_Working_capital\"><\/span>Variable Working capital<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">It is the extra working capital set aside to meet any sudden increase in demand.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Reserve_Margin_Capital_Working\"><\/span>Reserve Margin Capital Working<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">It is the extra money that your firm has in hand. Note that this capital is in addition to your regular working capital.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">You may use it to cover unanticipated situations like natural disasters, equipment failure, or property damage.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Seasonal_Variable_Working_Capital\"><\/span>Seasonal Variable Working Capital<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">As the name implies, this is extra money set aside to cover the year&#8217;s high season demand. To satisfy such high seasonal capital needs, this can be a boon.&nbsp;<\/p>\n\n\n\n<p class=\"has-large-font-size wp-block-paragraph\">What are Working Capital loans?<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It is a loan that you can use to fund your daily business-oriented activities. A business doesn&#8217;t always have consistent sales throughout the year. You may occasionally require money to fund your operations. This is where working capital loans&nbsp;come to the rescue!<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Working capital loans are available from banks and other non-banking financial institutions. They assist you in covering your operating costs during this time of low sales and revenue. Such a loan is crucial for businesses that experience seasonal business cycles.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It can also be necessary for cyclical sales during decreased company activity. So, it mostly depends on the loan size and the financial health of your business.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">You may or may not need to put up collateral to get one of these loans. Read for more <a href=\"https:\/\/www.indifi.com\/working-capital-loans-india\">detailed information on working capital loans<\/a><\/p>\n\n\n\n<p class=\"has-large-font-size wp-block-paragraph\">Types of Working Capital Loans<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">There are different types of working capital loans available in the market.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Short-term_loan\"><\/span>Short-term loan&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">If you are getting a short-term loan, you must know it has a fixed interest rate and payment schedule. Note that these loans are secured.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Bank_overdraft_facility_or_credit_line\"><\/span>Bank overdraft facility or credit line&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">This is one of the most flexible working capital loans you will come across. In this, the lender permits you to utilize a specific amount. You must take care not to spend more than the amount approved.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Trade_Credit\"><\/span>Trade Credit<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">When you place a large order with a supplier, they will offer you a trade credit. However, the provider will only approve this loan after carefully reviewing a bunch of things. It would be your creditworthiness, earnings, and credit history.&nbsp;<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Account_Receivables\"><\/span>Account Receivables&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">You can use your verified sales, orders, or accounts receivable to apply for a loan. It is perfect if a business lacks the resources to fulfill a sales order.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But, these loans are only secured if your business has a solid reputation. Also, your business should have a robust track record of making on-time debt payments.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Bank_Guarantee\"><\/span>Bank Guarantee&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">It is a working capital loan without a fund basis. You can get a bank guarantee to balance the potential risk. It could be the risk associated with the failure to fulfill a specific agreement.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Working_Capital_Cycle_What_is_it\"><\/span>Working Capital Cycle: What is it?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The working capital cycle measures th<strong>e time between when cash is collected from a customer and when it is paid out to suppliers<\/strong>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The working capital cycle can be used as a <strong>measure of how efficiently a firm manages its cash<\/strong>. It can also indicate the company&#8217;s ability to pay its bills on time. The higher the working capital cycle, the more efficient the company\u2019s cash management.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_to_Calculate_Working_Capital_Cycle\"><\/span>How to Calculate Working Capital Cycle?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">To calculate the working capital cycle, you will need the following information:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Accounts receivable turnover ratio<\/li><li>Inventory turnover ratio<\/li><li>Payables turnover ratio<\/li><\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Once you have this information, you can calculate the working capital cycle by using the following formula:<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Working capital cycle =<strong> (Accounts receivable turnover ratio + Inventory turnover ratio) \u2013 Payables turnover ratio<\/strong>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Then, the working capital cycle can be calculated by adding the accounts receivable and inventory turnover ratios. The payables turnover ratio then needs to be subtracted from the result.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Once done, you will know the number of days it takes for a company to generate cash and use that cash to pay for its expenses.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For example, let\u2019s say that a company has accounts receivable turnover ratio of 4, an inventory turnover ratio of 8, and a payables turnover ratio of 2.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Now, using the above formula, let&#8217;s calculate the working capital cycle ratio:<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Working capital cycle = <strong>(4 + 8) \u2013 2 = 12 \u2013 2 = 10<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">So, we can say that it takes the company 10 days to turn its working capital over.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Wrapping_Up\"><\/span>Wrapping Up<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">I am pretty sure by now you have a good understanding of the different working capitals. If so, then you can easily apply for a working capital loan when in need. It will help you to meet the day-to-day business without breaking a sweat.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Working capital loans are generally provided at reasonable interest rates. Also, they have a short tenure of maybe 12 months. All in all, it is a very good option in case your business is facing financial restraints.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Now, if you&#8217;re looking for working capital loans online, do not forget to check <a href=\"https:\/\/www.indifi.com\/business-loan\" target=\"_blank\" rel=\"noreferrer noopener\">Indifi<\/a> for the best interest rates and easy processing.&nbsp;&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Struggling to manage funds for your business &amp; don&#8217;t know which types of working capital would be best for you? If so, you&#8217;ve just landed at the right place.&nbsp; It is quite obvious that running a business is no piece of the cake. You have to manage a ton of things together. You have employees [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":5969,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[141],"tags":[],"class_list":["post-5968","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.indifi.com\/blog\/wp-json\/wp\/v2\/posts\/5968","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.indifi.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.indifi.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.indifi.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.indifi.com\/blog\/wp-json\/wp\/v2\/comments?post=5968"}],"version-history":[{"count":4,"href":"https:\/\/www.indifi.com\/blog\/wp-json\/wp\/v2\/posts\/5968\/revisions"}],"predecessor-version":[{"id":15267,"href":"https:\/\/www.indifi.com\/blog\/wp-json\/wp\/v2\/posts\/5968\/revisions\/15267"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.indifi.com\/blog\/wp-json\/wp\/v2\/media\/5969"}],"wp:attachment":[{"href":"https:\/\/www.indifi.com\/blog\/wp-json\/wp\/v2\/media?parent=5968"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.indifi.com\/blog\/wp-json\/wp\/v2\/categories?post=5968"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.indifi.com\/blog\/wp-json\/wp\/v2\/tags?post=5968"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}