It is well known that working capital is the basis of any business, ensuring the full functioning of the enterprise. If there are not enough of them, the legal entity may lose a significant share of the profit; Sometimes a lack of working capital even leads to serious losses. A special bank loan called loan to replenish working capital.
Working capital loan - what is it?
Loan to replenish working capital (working loan) - type of short-term target lending, which is provided to legal entities in need of an additional source of financing for production processes.
Since the intensity of use of working capital directly affects profitability, increasing it through a bank loan allows you to maintain the stability of the company’s income and make the business more profitable.
There are two main advantages of such a loan - the provision of an individual repayment schedule, taking into account the seasonality of the business, as well as the possibility of early repayment of debt without penalties.
What tasks can a revolving loan successfully solve?
Often, enterprises, along with their own capital, purposefully use earthly working capital to expand their range, purchase materials, raw materials, and replenish their inventory. Accordingly, the grounds for applying for a revolving loan may be as follows:
- purchase of materials, goods, etc. for the purpose of further implementation;
- acquisition of raw materials, services, replenishment of inventories directly related to production;
- the need to urgently make an advance payment for the purchase of goods;
- the need to expand the product range;
- opening a retail outlet, branch or division.
For organizations whose profits depend on seasonal demand for products, this type lending to legal entities makes it possible to continue working without compromising the financial condition of the business if there is a shortage of own funds.
A loan to replenish working capital also helps in unforeseen situations related to violation of contractual obligations by counterparties, when the company’s current account has a shortage of funds to cover current expenses.
Conditions for providing a revolving loan by Russian banks
- Negotiable credit can be issued in the form of a revolving or non-revolving credit line or a one-time tranche in the amount of 300 thousand to 100 million rubles.
- Interest rates - from 9.5% in rubles or other currencies.
- Commission for registration - 0-0.5%.
- Loan terms are 12-36 months.
- Most banks provide deferment of principal repayment for a period of 3 months or more.
The list of requirements that Russian banks impose on those wishing to take out a revolving loan is quite extensive.
- The potential borrower is a registered legal entity or individual entrepreneur.
- The applicant can confirm the existence of a stable business that has existed for at least one year (in some cases 6 months).
- The enterprise is actually located in the region where there are branches or branches of the bank.
- The founders of the business are citizens of the Russian Federation aged 22 to 60 years.
- The potential borrower has no debt on other loans.
To obtain a revolving loan, you must submit constituent documents to the bank if the borrower was not serviced by this bank; financial and accounting reporting; as well as other documents - certificates of no debt to the tax authorities, an extract from the Unified State Register of Legal Entities, a lease agreement, etc.
In addition, to approve an application for such a loan banks Sometimes they require a guarantee from the founders of the enterprise or the collateral object. Fixed assets, goods in circulation, real estate, company property or personal property of the founders can be provided as collateral.
What does this look like in practice?
Suppose that an organization engaged in the production of juices needs to purchase raw materials in the autumn. At this moment, there are not enough own funds, so the company turns to the bank and receives a loan in the form of a revolving credit line for seasonal purchases of vegetables, berries and fruits for the production of juice products. The loan amount is 1 million rubles. The legal entity transfers 700 thousand rubles from loan funds to the supplier of raw materials. He still has 300 thousand left at his disposal. A month later, one of the contractors pays the company for goods in the amount of 900 thousand rubles. With this money, the company completely covers the loan, including interest. Since the line is renewable, the enterprise again has at its disposal an amount of 1 million rubles of borrowed funds. The company can use this money again, for example, to purchase raw materials from another supplier.
So , obtaining a revolving loan allows you to solve many problems and increase the profit of an enterprise without investing your own funds. However, before increasing working capital with the help of such a loan, you should take into account all the possible consequences of failure to fulfill loan obligations and choose the optimal one from all offers according to the conditions.
In the work of every entrepreneur, a situation may arise that there is not enough money. Today we will talk about where a businessman can find finance and, most importantly, how to apply for this financial assistance. Will it affect taxation, or can it be avoided?
The businessman invests his own money in the business
The easiest and safest way to replenish working capital for entrepreneurial activity is to invest personal money in the business. There are no prohibitions regarding such actions. There are also no restrictions on amounts. Therefore, if you have savings on deposit in a bank or just in a closet at home, at any time you can take this money and put it into circulation.In this case, you do not need to make any contracts with yourself. As an entrepreneur, you have the right to both invest your money in business and withdraw it for personal needs, in any amount whenever you want (see the opinion of an independent expert in the box below).
When investing your own funds in a business, you are not required to pay any taxes. The main thing is not to register this receipt as sales revenue. Otherwise, tax authorities may consider this amount as unaccounted income and charge additional tax on it.
If you are depositing personal money into a current account, make sure that the announcement for a cash contribution correctly indicates the basis for crediting the funds. You can use one of the following formulations:
- “depositing personal funds”;
- “replenishment of a business account from personal funds.”
If it is more convenient for you to draw up cash documents, then register the receipt of personal money in the cash register using a cash receipt order in form No. KO-1 (approved by Resolution of the State Statistics Committee of Russia dated August 18, 1998 No. 88). In this case, indicate, for example, “depositing personal funds into the entrepreneur’s cash desk” as the basis for the receipt of funds.
Note. Property, including a businessman’s money, is indivisible. You can withdraw money from your business at any time and spend it on personal needs. Or, conversely, invest free money in your activities.
You also have the right to simply pay in cash for purchases necessary for the business. After all, you are not obliged to divide your funds into those that you use in business and those that are intended for personal needs. In order to take these costs into account for tax purposes, simply collect the necessary documents that will confirm that you paid for the property (work, services) necessary for your activity. This could be a cash receipt, invoice or sales receipt.
How can an entrepreneur deposit personal money into his business?
An entrepreneur can easily involve his own funds in the business; there are no restrictions on this. Typically, to do this, a businessman either deposits money into the cash register or deposits it into his current account.If funds are deposited into a current account, indicate that these are your own funds. Thus, you will separate these receipts from taxable income (sales proceeds).
When replenishing the cash register with personal money, indicate in the cash receipt order that the entrepreneur’s personal money is being deposited. Of course, this is relevant for those businessmen who have not given up maintaining cash documents. And for those who do not draw up receipts and expenditure orders, it is advisable to draw up a written decision. In it, indicate the amount and source of funds.
There is no need to reflect such funds in the income book or the income and expenses book (clause 14 of Order of the Ministry of Finance of Russia No. 86n, Ministry of Taxes of Russia No. BG-3-04/430 dated 08/13/2002).
Use raised funds to develop your business
Note. If an entrepreneur does not have enough funds to conduct business, he can seek help from an organization where he, as an individual, is the founder.
Another way for an entrepreneur to attract “his” money into business is to contact a friendly company. That is, the one where you are the founder or manager. Note that this practice is widespread. For example, organizations quite often resort to financial assistance from their management. But it also happens the other way around: the manager or founder needs the company’s help.
You have two ways to borrow money from a company: as a loan or as a gift. And since you will receive the amounts from a legal entity, these transactions must already be documented. Another important nuance is that when attracting money from outside, you may have obligations to pay taxes. Now let's look at each situation in more detail.
In order for a friendly company to transfer money to you, draw up a loan agreement in writing (clause 1 of Article 808 of the Civil Code of the Russian Federation). Be sure to write down the loan amount in it (clause 1 of Article 807 of the Civil Code of the Russian Federation). Without this, the agreement will be considered not concluded (Article 432 of the Civil Code of the Russian Federation). Also reflect in the contract the term and procedure for repaying the loan. For example, you can repay the debt in monthly installments or repay the entire loan amount in one lump sum. Please note that the period for which a loan agreement can be concluded is not limited by law. That is, you can enter into an agreement for a fairly long period. If the deadline for returning the money has come and there is nothing to return, you can extend the contract.
Note. If the loan agreement does not indicate that it is interest-free, by default it will be considered that you are obliged to pay interest for using the money (clause 1 of Article 809 of the Civil Code of the Russian Federation).
Another important condition that you must reflect in the contract is the amount and procedure for repaying interest on the use of money. Or you can stipulate that the loan is interest-free (Articles 808 and 809 of the Civil Code of the Russian Federation).
From the moment the money is received from the organization, the agreement will be considered concluded.
Let us note one more point. Perhaps you are a manager at the company where you are planning to get a loan. In this case, the loan agreement will be signed by the same person on both the lender and the borrower side. Let’s say right away that this is not a violation of the law. After all, on the part of the lending organization, you act on behalf of the legal entity that you manage (Article 53 of the Civil Code of the Russian Federation).
Now regarding tax obligations. When receiving money under a loan agreement, you do not need to take it into account as income for tax purposes (subclause 10, clause 1, article 251 and subclause 1, clause 1.1, article 346.15 of the Tax Code of the Russian Federation). Accordingly, when repaying the loan, you should not reflect this amount as an expense either (clause 12 of article 270 and article 346.16 of the Tax Code of the Russian Federation).
However, when using a loan without paying interest or with a low interest rate (below 2/3 of the refinancing rate of the Central Bank of the Russian Federation), you receive material benefits from savings on interest, which, in turn, is subject to personal income tax at a rate of 35% (clause 1 of Article 210 Tax Code of the Russian Federation). Whether you pay this tax or not depends on your tax regime. We have provided information on in what cases a businessman is obliged to pay personal income tax on income in the form of material benefits from savings on interest in the table below.
When a businessman who has received an interest-free loan needs to pay personal income tax
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Taxation system used by the entrepreneur |
Is a businessman obliged to pay personal income tax on material benefits? |
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There is no clear answer, you will have to decide for yourself. Financiers point out that “simplified people” are exempt from paying personal income tax (clause 3 of Article 346.11 of the Tax Code of the Russian Federation). The list of income taken into account under the simplified tax system is approved by Articles 249 and 250 of the Tax Code of the Russian Federation (clause 1 of Article 346.15 of the Tax Code of the Russian Federation). There are no material benefits from saving on interest in this list. Thus, the material benefit from saving on interest is not subject to taxation under the simplified tax system (letter of the Ministry of Finance of Russia dated July 24, 2013 No. 03-11-06/2/29384). And in the letter of the Ministry of Finance dated August 27, 2014 No. 03-11-11/42697 it is said that the tax base for personal income tax for such transactions does not need to be determined. However, judges think differently - that the use of the simplified tax system does not exempt a businessman from paying personal income tax at a rate of 35% (clause 3 of article 346.11 of the Tax Code of the Russian Federation). And the amounts saved on interest when receiving loans are subject to personal income tax precisely at this rate (clause 2 of Article 212 of the Tax Code of the Russian Federation) (see resolutions of the Federal Antimonopoly Service of the Ural District dated June 11, 2014 No. F09-2859/14 and the Federal Antimonopoly Service of the Volga-Vyatka District dated April 10. 2013 No. A82-882/2012) |
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Taxation system in the form of UTII |
The UTII payer is not obliged to pay personal income tax when using an interest-free loan (clause 4 of Article 346.26 of the Tax Code of the Russian Federation, letter of the Ministry of Finance of Russia dated November 25, 2009 No. 03-04-05-01/827). At the same time, some judges believe that a businessman must prove that he uses borrowed funds in an “imputed” business (Resolution of the Federal Antimonopoly Service of the Volga District dated November 17, 2011 No. A65-3239/2011) |
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Patent tax system |
A businessman with a patent does not have to pay personal income tax when using an interest-free loan (subclause 1, clause 10, article 346.43 of the Tax Code of the Russian Federation) |
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General taxation system |
A businessman under the general tax regime is obliged to pay personal income tax on income in the form of material benefits (clause 1 of Article 210 and Article 212 of the Tax Code of the Russian Federation). The tax on such income should be calculated at a rate of 35% for residents of the Russian Federation and 30% for non-residents (clauses 2 and 3 of Article 224 of the Tax Code of the Russian Federation). As a general rule, the tax agent is obliged to withhold the amount of personal income tax and transfer it to the budget (clause 2 of Article 226 of the Tax Code of the Russian Federation). That is, the organization that issued you an interest-free loan. If the lending company cannot withhold personal income tax from your income, then it must notify the tax office and you about this by February 1 of the next year (clause 5 of Article 226 of the Tax Code of the Russian Federation). And only in this case you must pay personal income tax yourself |
Another option to get help from your company is to sign a gift agreement with it. If the gift amount is over 3,000 rubles, given that the donor is a legal entity, such an agreement must be drawn up in writing (Clause 2 of Article 574 of the Civil Code of the Russian Federation).
Please note that the recipient of the gift can only be an individual. There is no need to indicate in the gift agreement that the money is received by an individual entrepreneur. The fact is that gifts over 3000 rubles. between commercial organizations are prohibited (subclause 4, clause 1, article 575 of the Civil Code of the Russian Federation). And individual entrepreneurs, when applying the norms of civil legislation, are treated as legal entities. This is directly provided for in paragraph 3 of Article 23 of the Civil Code of the Russian Federation. Therefore, donations between a company and an individual entrepreneur are prohibited.
Regarding the issue of tax obligations, we note the following. Amounts over 4,000 rubles received from an organization as a gift are subject to personal income tax (clause 28 of article 217 of the Tax Code of the Russian Federation). And since you can only receive these funds as an individual, the tax treatment you apply does not matter. You will have to pay personal income tax on the donated amount in any case. Here the donating company will be a tax agent (Article 226 of the Tax Code of the Russian Federation). Therefore, it is the company that is obliged to withhold the amount of tax from the gift and transfer it to the budget. This opinion is confirmed by an independent lawyer (see his comment in the box below).
How an organization can donate money to its founder registered as an individual entrepreneur
A businessman cannot register a donation of funds from an organization. This is prohibited by law. Indeed, according to paragraph 3 of Article 23 of the Civil Code of the Russian Federation, persons officially registered as individual entrepreneurs are equated to commercial organizations in matters of civil legislation. And donation between such organizations is prohibited (subclause 4, clause 1, article 575 of the Civil Code of the Russian Federation). It turns out that a transaction involving a gift of money can only be made in relation to an individual. And when individuals receive funds as a gift from a company, only 4,000 rubles are not subject to personal income tax. (clause 28 of article 217 of the Tax Code of the Russian Federation). The remaining amount should be subject to tax at a rate of 13%. The organization itself in this case will be the tax agent. Therefore, she must withhold tax upon payment and transfer it to the budget (letter of the Ministry of Finance of Russia dated October 3, 2008 No. 03-04-06-01/288).Three main tips
- When replenishing your current account with personal money, do not indicate the word “revenue” as the basis for the transfer. Otherwise, tax authorities will consider this amount taxable income.
- Money received under a loan agreement is not income for tax purposes. But if the loan was interest-free, some merchants become obligated to pay personal income tax.
- You can receive money from an organization under a gift agreement only as an individual. Moreover, if the donated amount exceeds 4,000 rubles, the company is obliged to withhold personal income tax from the gift.
A loan to replenish the working capital of an enterprise without providing collateral is in considerable demand. Such loans can be obtained from many popular banks in our country (you can see the top 100).
This lending is aimed at the following purposes:
- Purchase of seasonal materials.
- Replenishing deficiencies in your working capital.
- Mediation of payment turnover.
Short-term lending to increase working capital is the basis of a business that ensures the successful functioning of the business.
Today you can take out from 300 thousand to 100 million at a time or get a line of credit. The average interest rate is 9%. The loan is issued in Russian rubles and foreign currency. Duration – from 12 to 36 months.
This condition is provided in most banks, but in some financial institutions they may differ significantly. There are lenders who offer a deferment of principal payments for 3 months or more.
Among the main requirements for the borrower:
- Citizenship of the Russian Federation.
- No debt on other loans.
- Stable development of a business opened more than six months ago.
- Some lenders require you to pay a fee to apply for a loan.
The advantages of such programs:
- An individual repayment schedule, which is drawn up by a bank employee taking into account the seasonality of the business.
- Possibility to repay the loan early without penalties.
- Quick application processing if the documents are in complete order.
You need to correctly assess your strength and ability to pay off the entire debt, otherwise big problems may arise.
When choosing a bank and type of loan, in addition to the rate, you need to pay attention to:
- Loan term.
- Availability of commissions and their size.
- Conditions for early repayment.
- The period during which the decision is made.
- Collateral requirement.
- What types of reporting are needed?
- Possibility of creating an individual payment schedule.
- Requirements for maintaining company turnover.
- Interest rate on individual terms.
Read about which bank is better to choose for starting a business.
Other types of bank loans may be useful for businesses:
- Investment: acquisition of commercial real estate, vehicles, equipment, other costs associated with investments.
- A loan for a car or special equipment for use in the activities of the enterprise.
- A loan for equipment secured by it.
- Commercial mortgage (for real estate: office, warehouse, industrial, as well as land).
You can get a loan to replenish working capital from the following financial institutions:
- Uralsib and others.
Loans to replenish working savings can be obtained not only from a bank, but also from individuals or legal entities (read more about lending from private investors).
Such lenders are more loyal to businessmen and look less closely at the business itself, so you can count on almost one hundred percent approval. Interest rates are also lower than for bank loans.
But there are also disadvantages. One of them is the risk of contacting a little-known person. Lending from a banking institution that has a good reputation and numerous reviews is more reliable. Loans from private lenders are possible for up to 3 million rubles, and the term is 1-12 months, the interest rate is determined individually.
You will need a guarantee from other business owners and documents indicating that the company has been operating for more than six months. Money can be used to settle payments with counterparties, purchase goods, open new branches, purchase equipment and materials.
Andrey Yakovlev
company financial analyst
"Service-Product"
Magazine "Financial Management"
No. 7-8 (85) July-August 2009
What is the company's need for working capital in the current financial fashion to reduce? Enterprise analysis will help you answer.
Today, the “buoyancy” of an enterprise largely depends on how work with suppliers and customers is structured, or more precisely, how well the company’s accounts payable and receivable are balanced. It is these two parameters that mainly determine the needs for debt financing of a business, if we do not take into account all sorts of investment projects to create new and modernize existing production and trading facilities, which are frozen for most enterprises today. And in order to determine the company’s needs for borrowed money, it is better to start by analyzing the sales structure, existing markups, the turnover period of accounts payable and receivable, as well as the length of time the goods are in transit and in the warehouse.
What data will be required
Let's look at how the need for borrowed funds is calculated using the example of the trading company "Service-Product". The company specializes in the distribution of alcohol and juice products; the assortment includes about 2,000 items, of which the most popular items are about 200. Purchases are made directly from manufacturers, so for each supplier the range of products supplied is unique. Like the vast majority of Russian companies, Service-Product faced an acute shortage of borrowed funds due to the crisis.
Table 1 Calculation of the company's financial cycle (days)
| Contractor's name | Deferred payment provided by suppliers | Deferred payment provided to clients | Time for delivery of goods | Stock of goods in warehouse | Financial cycle of the company (gr. 3 + gr. 4 + gr. 5-gr. 2) |
| Supplier No. 1 | 30 | 35** | 5 | 21 | 31 |
| Retail | -* | 30 | - | - | 26 |
| Networks | - | 45 | - | 41 | |
| Supplier No. 2 | 45 | 35 | 0 | 14 | 4 |
| Retail | - | 30 | - | - | -1 |
| Networks | 45 | - | 14 | ||
| For the company as a whole | 39 (30 x 41% + 45 x 59%)*** | 35(35X41% + 35 X 59%) | 2 (5 X 41% +0 X 59%) | 17(21 X 41% + 14 X 59%) | 15 |
* The indicator does not depend on where the product will be sold - retail or wholesale to a retail chain.
** Deferred payment provided to customers is calculated using the formula (Deferred payment for retail customers X Their share in turnover determined in purchase prices + Deferred payment for chains X Share in turnover determined in purchase prices).
*** Elements of the financial cycle for the company as a whole are determined taking into account the shares of suppliers in the company’s turnover, determined in purchase prices.
The calculation of the need for debt financing and the search for ways to reduce it began with the collection and systematization of indicators characterizing business activity (see Table 1), namely:
the duration of the deferred payment provided by the supplier (accounts payable turnover period);
the period during which customers pay for goods purchased from Service-Product (accounts receivable turnover period);
the time the goods are stored in the warehouse and the goods are in transit.
All this information was obtained from contracts concluded with suppliers and contractors and from management accounting. For example, in an effort not to lose the trust of suppliers, Service-Product does not allow even the slightest delay in payments. Therefore, to calculate the financial cycle of the enterprise, contractual deferrals provided by suppliers were used.
As for the timing of repayment of receivables by customers, the situation is different. Not all of them can boast of strict payment discipline, so the period during which buyers pay for the products supplied to them was determined as the average receivables turnover period for the previous month.
Time spent by goods in transit - data from the company’s management accounting. Moreover, we are talking about the delivery time of goods from suppliers, but the time for transportation to the client is not taken into account. This is due to the fact that the contracts under which Service-Product operates assume that the moment of delivery of the goods is considered to be the date of its shipment from the manufacturer’s warehouse.
To determine the storage time of goods in a warehouse, a two-fold approach was used. For a number of suppliers, this characteristic is determined based on concluded contracts. This is due to the fact that some manufacturers oblige the distributor to hold a certain volume of their products - for example, the minimum balance of goods must be no less than five days' sales volume. This requirement in “Service-Product” is strictly fulfilled, however, there are no stocks exceeding the standard established by the manufacturer. For products from other suppliers that do not impose similar restrictions on the distributor, the shelf life of their products was determined as the inventory turnover period based on statistics for the previous month.
In addition to the above data, to calculate the need for debt financing, Service-Product needed to determine the turnover in purchase prices (the cost of goods supplied by manufacturers). Moreover, a more complex approach to determining this indicator was preferred to accounting data. Its essence boils down to an analysis of the structure of trade turnover and markups applied to goods from different manufacturers (see Table 2). In the course of working to optimize the financial cycle, this data will be necessary to analyze how certain management initiatives will affect the company’s financial performance. Let us immediately make a reservation that such a solution became possible due to the fact that trade margins are tied to suppliers, and not to specific names or categories of their goods. This is a fairly standard pricing practice for many distribution companies.
Table 2 Main indicators of the trading company for the month
| Contractor's name | Share in trade turnover, % | Trade turnover, rub. | Markup, % | Gross profit, rub.* | Trade turnover at purchase prices, rub. | Share in trade turnover in purchase prices, % |
| Supplier No. 1 | 40 | 4 000 000 | 13 | 474308 | 3 525 692 | 41 |
| Retail | 70 | 2 800 000 | 15 | 365 217 | 2 434 783 | 69 |
| Networks | 30 | 1 200 000 | 10 | 109 091 | 1 090 909 | 31 |
| Supplier No. 2 | 60 | 6 000 000 | 18 | 934 783 | 5 065 217 | 59 |
| Retail | 70 | 4 200 000 | 20 | 700 000 | 3 500 000 | 69 |
| Networks | 30 | 1 800 000 | 15 | 234 783 | 1 565 217 | 31 |
| Total | 100 | 10 000000 | 16 | 1409 091 | 8 590 909 | 100 |
* Gross profit in rubles for the month = Trade turnover: (1 + Markup) x Markup.
Calculation of the need for debt financing
The need for debt financing can be determined as the difference between the company's currently available working capital and the amount of working capital required to maintain the existing financial cycle.
The amount of available own working capital is calculated based on balance sheet data using the following formula:
Own working capital = Own capital (p. 490) + Long-term liabilities (p. 590) - Non-current assets (p. 190).
Of course, ideally, you will have to draw up a management balance sheet so that the data it contains is relevant at the time of the calculations.
And the volume of working capital needed by a company can be calculated as the product of turnover in purchase prices and the company’s financial cycle (reduced to 30 days), which is determined by the classic formula:
Financial cycle (days) = Customer delay (days) + Delivery delay (days) + Inventory holding time (days) - Supplier delay (days).
By the way, the logic for calculating the financial cycle of a manufacturing enterprise will be largely similar, with the only difference being that the time spent on production will be added to the formula, and the shelf life of inventories will need to be calculated separately for stocks of finished products, semi-finished products, raw materials and materials.
Example 1
The trading enterprise's own working capital amounts to 4 million rubles. The financial cycle for the company as a whole is 15 days (see Table 1 on page 21), and the turnover in purchase prices is 8,590,909 rubles (see Table 2 on page 22). Accordingly, in order to work with suppliers and clients on the same terms, the company needs 4,295,455 rubles of working capital (8,590,909 rubles X 15 days: 30 days). Hence, the need for financing to replenish working capital is 295,455 rubles (4,295,455 - 4,000,000). (On the journal’s website www.fd.ru you can download an MS Excel file, which contains all the calculations described in the article - to do this, click on the “Additional material” link located next to the title of this article.)
Is it worth changing anything in working with contractors?
Calculating your funding needs in itself is undoubtedly useful. The financial director of the enterprise receives a clear guideline; in fact, this is exactly what the limit on the credit line should be, which needs to be negotiated with banks. But in times of crisis, when bankers are extremely wary of borrowers, obtaining the necessary financing is problematic. However, using the data collected at the previous stages, it is possible to develop a set of solutions that will help the company depend less on bank financing and assess the associated risks and losses.
As a rule, such measures come down to shortening payment deferrals provided to customers and, conversely, increasing payment terms to suppliers.
Example 2
Let's take the previous example. Let’s say the company managed to increase the deferred payment under contracts with suppliers by 3 days and reduce the time allotted for paying for goods delivered to customers by the same amount. In addition, it was possible to reduce warehouse stocks to 14 days and get rid of the loss of time for delivery - 2 days (of course, the time for transportation will not go away, but in the contract with the supplier you can indicate that delivery is considered the date the goods arrive at the distributor's warehouse, and not the moment of shipment from the seller's warehouse). Then the financial cycle of the enterprise will no longer be 15 days, but only 4 days. Accordingly, the amount of working capital required for the company’s operating activities will be 1,145,455 rubles (8,590,909 rubles X 4 days: 30 rubles). At the same time, the need for credit resources will disappear, and moreover, 2,854,545 rubles (4,000,000 - 1,145,455) can be invested.
At the same time, when calculating the future increase in cash flow, do not forget about the risk:
increase in the number of late payments from customers;
increase in bad accounts receivable;
late payment for goods shipped by suppliers and subsequent accrual of penalties;
reduction in trade turnover due to the lack of any in-demand goods in stock.
Perhaps the only difficulty and certain subjectivity in such calculations is the assessment of how the analyzed indicator will change after optimization of the financial cycle. Most often, the entire calculation is based on expert judgments. However, in the practice of the Service-Product company, data obtained from the analysis of accumulated statistics is often used. Let's illustrate how this works in relation to the risk of increasing bad accounts receivable after reducing customer payment deferrals. In the company's practice, a situation has arisen in which out of the total volume of products supplied to customers, no more than 5 percent remains unpaid by customers. Oddly enough, there is a psychological factor at work here: since they have reduced my deferred payment, I will collect products from them and will not pay until they drag me to court. According to company statistics, a decrease in deferment to customers leads to an increase in bad accounts receivable by 0.05 percent. Accordingly, planning to once again reduce the deferred payment to counterparties, the company's management assumes that the increase in the volume of non-payments will not exceed 0.05 percent. And the losses associated with such a decision can be estimated as the product of existing bad receivables by 0.05 percent. By analogy, you can act in relation to all other risks.
By the way, when developing measures to optimize the need for working capital, it will be quite justified if we consider savings and additional costs not in general, but for each specific initiative: increasing the deferment of payment for debts to suppliers, reducing warehouse stocks, etc. The fact is that some decisions will be unprofitable for the enterprise, which may go unnoticed if you calculate only “total savings as a result of a comprehensive reduction in the financial cycle” and “total additional losses associated with the planned changes.”
Quite often in the process of doing business there are times when the company begins to urgently need additional money. In this case, the company’s management can borrow money from a credit institution or take advantage of a raw material loan. But as a result of such actions, the company will be obliged to pay a certain percentage, which is assigned for the use of borrowed funds. How beneficial is replenishing working capital in this way to the enterprise, and what other options are there for stabilizing the company’s difficult economic situation?
How to replenish the shortage most profitably
Faced with such a problem, any company seeks to obtain a loan on more favorable terms, since additional costs do not contribute to the restoration of economic stability.
The easiest way to get a loan to replenish working capital is from a bank. But is it worth rushing to take such a step? In addition, a company does not always need cash. Sometimes, for the continuous conduct of the economic process, there are simply not enough certain raw materials or spare parts. In this case, it would be wiser to use a natural loan.
There is another way to receive help - this is the replenishment of working capital by the founder. This option is considered the most preferable for the enterprise.
Founding assistance of the company
Seeking help from the founders' meeting is the first step. The missing funds can be replenished by making a contribution to the authorized capital, in the form and by increasing the property base. In order for the replenishment of working capital by the founder to be formalized correctly, the consent of 2/3 of the participants is required. By decision of the general meeting, changes are made to the constituent documents. They indicate the new value of deposits in proportion to the share of each participant. Deposits that are made additionally must arrive in the account no later than two months from the date of signing the decision.
After the final replenishment of working capital is formalized in the form of additional agreements to the constituent documents, it is necessary to submit an application to the tax office to register the changes made.
Pros and cons of investment assistance
The company has the right to use the founders' funds at its own discretion, without tax consequences. This form of assistance has its pros and cons. The positive point is that the replenishment is not subject to tax payments, since the founders’ funds do not participate in the taxable base. Founding assistance is of an investment nature and is not related to the sale of goods and services.
The disadvantages of such a loan are that all changes in capital have to be registered with the tax office. Also, with additional deposits of working capital, there is an imbalance between net assets and the amount of authorized capital.
Receiving assistance in the form of a bank loan
To receive financial assistance, the company has the right to use bank credit funds. When concluding an agreement, the conditions for the provision of funds and the terms for their return are stipulated. This replenishment of working capital has its own expense side, which is expressed in the form of accrued interest. In the tax base for income tax, such expenses are taken into account with a certain limitation. Accrued interest can be written off at a rate that is set depending on the size of the current refinancing rate.
The advantage of such a loan is that the bank is a reliable partner who always acts within the framework of the law. The disadvantages include a large number of documents that have to be collected when applying for a loan, interest deductions, as well as additional costs associated with opening a loan account. Expenses arising from the use of borrowed funds are included in non-operating costs.
Raw material credit received from the supplier
There are situations when banks refuse to provide a loan, or a company needs raw materials rather than cash. In this regard, the company begins to look for alternative sources of replenishment of working capital. Oddly enough, the solution to the problem may be simple. Sometimes it is enough for a company to inform its business partners about its difficulties, namely those counterparties who supply the necessary raw materials.
This type of lending is called commercial lending and has its advantages. The parties to the transaction agree on a certain deferred payment for the supplied materials. Contractual relations are documented and provided either free of charge or with interest. Indirect replenishment of working capital is documented with relevant primary documents. The counterparty is obliged to issue an invoice for the amount of accrued interest.
How to replenish working capital and transactions
Depending on the type of financial assistance, certain entries are made in accounting. If financial injections are provided in the form of gratuitous assistance from the founders, then the accountant makes a debit entry in correspondence with account 98. Then the amount received is written off to the credit of account 91.1 to recognize the gratuitous assistance as other income. Upon receipt of property assistance, the replenishment of working capital (entry D-t 08 K-t 98) is issued depending on the purpose of the assets.
To process credit money, accounts 66 and 67 are used. Funds received into the current account are accounted for in accounting by the following entries: D-t 51 K-t 66 (67). Replenishing working capital by attracting borrowed money allows the company not to interrupt the production process and fulfill contractual obligations to customers on time.