When I was a banker at Kotak, very large companies used to frequently borrow short term loans to the tune of tens of crore for upto a month (sometimes longer) a.k.a Working Capital loan.

I understood the concept of working capital but was always surprised why a large company had this gap to even fund their daily operations like salaries.

Since running my own business, I’m better able to appreciate their need.

For us, when partnering with a new customer, the bulk of payments comes after go-live. This sometimes means a couple of months - especially with large BFSI companies where the integration is deep.

A young company with sustainable business model too will face existential crisis if revenue is not realised timely.

Additionally, a lot of working capital loans may gobble up a sizeable portion of the profit margin, especially in the early days of the company.

Profit & Loss statement and Balance Sheet obscure this on-ground reality by putting them as account receivable assets and payable liabilities.

Now we always give cashflow statements the highest attention.

PS - Happy Dussehra 🎉