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SME-Working capital

SME-Working capital

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Published by: ankur402 on Jan 28, 2010
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07/25/2013

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PROBLEM OF TIMELY AVAILABLILTYOFWORKING CAPITAL TO SME’S
EXECUTIVE SUMMARY
Small and Medium Enterprises (SMEs) are a key factor in the economic development andinnovation. The core of the political and economic transformation of any country is thecreation of the private sector, the development of entrepreneurship and creation of SMEs.They are considered to be one of the principal driving forces in economic development.SMEs stimulate private ownership and entrepreneurial skills, they are flexible and canadapt quickly to changing market demand and supply situations, they generateemployment, help diversify economic activity and make a significant contribution toexports and trade. SMEs also play an important role in innovation and the high-tech business, due to their flexibility and creativity many of them became large businesses.But despite their significant role in the development of an economy they face many problems and one such problem is the timely availability of working capital. Fundsemployed in current assets constitute working capital. It is infact referred to as life-blood’or ‘controlling-nerve’ of the unit. The concept used for working capital may be grossworking capital or net working capital. Gross working capital constitutes current assets,whereas net working capital means current asset minus current liabilities.The above stated problem arises mainly due to delay in payments made by the debtors.The funds of many SME industrial units are blocked in receivables. As a result, recyclingof funds is affected and production suffers. In a competitive environment, it must beensured that receivable dues are realized with utmost expedition. The SME units willhave to make special efforts for collection of their dues for their growth.1
 
Another concern for the SME’s is to minimize their dependence on fund-based credit. Inorder to fulfill the working capital requirements of the business, the entrepreneursnormally take up various types of fund-based credit facilities namely cash credit,overdraft, demand loan, bill discount/purchase etc. from banks, but this sometimesincreases their operating cost and hence makes them less competitive. The funds lent tothe unit get paid on realization of sale proceeds towards the end of the production cycle, but it creates a problem for the unit in case payments are delayed from the debtors. Thusworking capital facilities are intended to finance current assets.
Other important components of working capital are cash and inventory. Cash is one of the mostimportant components of the working capital. It allows a business to meet its day-to-dayexpenses and
inventory is a list for goods and materials, or those goods and materialsthemselves, held available in stock by a business. Problems related to the aspects arediscussed in the report.The report also discusses about some of the initiatives taken by the Government of Indiain this regard like setting up of SIDBI, NABARD and other schemes.Finally the report concludes with the suggestions and conclusions.2
 
TABLE OF CONTENTS
S.NO.PARTICULARSPAGE NO.
1INTRODUCTION
I) NATURE OF THE STUDY7II) SIGNIFICANCE OF THE STUDY7III) SCOPE OF THE STUDY7
2SMES
I) AN INTRODUCTIONII) COMMON CHARACTERISTICS OF SME’S
3WORKING CAPITAL
I) AN INTRODUCTIONII) WORKING CAPITAL MANAGEMENT
4UNITMELY AVAILABILITY OF WORKINGCAPITAL: REASONS
I) DELAY IN PAYMENTSII) PROBLEMS WITH FUND-BASED CREDITIII) PROBLEM WITH CASH MANAGEMENTIV) PROBLEMS WITH INVENTORY MANAGEMENT
5SOME INITIATIVES TAKEN BY THEGOVERNMENT OF INDIA
3

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very helpful.... thanku.. :)
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