Banking and Lending
Encyclopedia of banking and lending terms covering the full spectrum from retail deposit-taking to wholesale syndicated lending.
Bancassurance
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“Distribution is the key to selling insurance — and banks have the best distribution.”
— Henri de Castries
Definition: Bancassurance is a partnership arrangement between a bank and an insurance company in which the bank sells the insurance company’s products to its existing customers. This model leverages the bank’s distribution network — branches, online platforms, and relationship managers — to reach a large customer base for insurance products such as life insurance, home insurance, and health insurance. Bancassurance benefits both parties: the bank earns commission income without developing insurance products, while the insurer gains access to a broad customer base without building its own distribution network.
In context: Intesa Sanpaolo (ISP.MI, a European equity index) offers “bancassurance products” alongside its lending, deposit, and investment services. BNP Paribas (BNP.PA, a European equity index) provides “bancassurance, insurance products and services” through its Commercial, Personal Banking & Services division.
Real-world example: When you visit your local bank branch to open a savings account, the banker might also offer you a life insurance policy underwritten by the bank’s insurance partner. The bank earns a commission on each policy sold, and the insurer gets access to the bank’s millions of customers.
Related terms: Insurance (Life), Retail Banking, Insurance Premium
Bank Holding Company
Definition: A bank holding company is a corporation that owns a controlling interest in one or more banks. This corporate structure allows the parent company to engage in a broader range of financial activities than a standalone bank might be permitted to conduct, including insurance, securities dealing, and asset management. Bank holding companies are regulated by central banking authorities and must maintain certain capital adequacy ratios. The structure provides organizational flexibility while subjecting the entire group to consolidated regulatory oversight.
In context: JPMorgan Chase & Co. (JPM, a US equity index) “operates as a bank and financial holding company.” Mitsubishi UFJ Financial Group (8306.T, an Asia-Pacific equity index) “operates as a bank holding company that engages in a range of financial businesses.”
Real-world example: JPMorgan Chase & Co. is a bank holding company that owns JPMorgan Chase Bank (a national bank), J.P. Morgan Securities (a broker-dealer), and various asset management entities, all under one corporate umbrella.
Related terms: Holding Company, Commercial Banking
Commercial Banking
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“The banker who is not also a merchant is nothing but a moneylender.”
— Walter Bagehot, Lombard Street (1873)
Definition: Commercial banking refers to the segment of the banking industry that provides financial services to businesses, ranging from small and medium enterprises to large corporations. Commercial banking services include accepting deposits, making business loans, providing lines of credit, offering trade finance, managing cash and treasury operations, and facilitating foreign exchange transactions. Commercial banks act as financial intermediaries, channeling deposits from savers into loans for businesses that need capital for operations, expansion, or investment.
In context: Banco Bilbao Vizcaya Argentaria (BBVA.MC, a European equity index) offers “traditional retail, wholesale, investment, and transaction banking.” DBS Group (D05.SI, an Asia-Pacific equity index) provides “commercial banking and financial services” through its Institutional Banking segment. Bank of America (BAC, a US equity index) offers “commercial loans, leases, commitment facilities, trade finance” through its Global Banking segment.
Real-world example: A mid-sized manufacturer obtains a USD 5 million revolving credit facility from its commercial bank to manage seasonal fluctuations in cash flow. The bank also provides the company with a lockbox service to accelerate the collection of customer payments.
Related terms: Retail Banking, Wholesale Banking, Trade Finance, Cash Management, Transaction Banking
Consumer Finance
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“Credit is a system whereby a person who cannot pay gets another person who cannot pay to guarantee that he can pay.”
— Charles Dickens
Definition: Consumer finance encompasses the lending and financial products provided directly to individual consumers, as opposed to businesses. It includes personal loans, auto loans, credit cards, mortgage loans, student loans, point-of-sale financing, and buy-now-pay-later products. Consumer finance companies earn revenue primarily through interest charges on outstanding balances and fees for services. The industry has been transformed by digital technology, with fintech companies and traditional banks offering increasingly automated and mobile-first consumer lending experiences.
In context: Sumitomo Mitsui Financial Group (8316.T, an Asia-Pacific equity index) provides “consumer finance and housing loans.” Banco Santander (SAN.MC, a European equity index) offers “consumer finance” through its Digital Consumer Bank segment. Commonwealth Bank of Australia (CBA.AX, an Asia-Pacific equity index) provides “credit cards, personal and business loans, car and equipment finance” and “buy-now-pay-later services.”
Real-world example: A consumer applies for a personal loan through a bank’s mobile app to finance a home renovation. The bank’s algorithm assesses the applicant’s credit score, income, and existing debts within seconds, approving a USD 25,000 loan at 7.5% interest with automatic monthly payments over five years.
Related terms: Credit Cards, Mortgage, Retail Banking, Fintech
Credit Cards
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“The credit card changed American commerce more profoundly than any financial innovation since the checking account.”
— David Evans, Paying with Plastic (2005)
Definition: A credit card is a financial product issued by a bank or financial institution that allows the cardholder to borrow funds up to a pre-approved limit to make purchases or withdraw cash. The cardholder must repay the borrowed amount, typically with interest if the balance is not paid in full by the statement due date. Credit cards are a major consumer financial product, generating revenue for issuers through interest charges, annual fees, merchant interchange fees, and late payment penalties. They are also a key component of the global payments infrastructure.
In context: American Express (AXP, a US equity index) offers “credit and charge cards and complementary products and services.” JPMorgan Chase (JPM, a US equity index) offers “credit cards, payment solutions” through its Consumer & Community Banking segment. Toyota Motor (7203.T, an Asia-Pacific equity index) provides financial services including “credit cards.” Apple Inc. (AAPL, a US equity index) offers “Apple Card, a co-branded credit card.”
Real-world example: A consumer uses an American Express Platinum card to purchase airline tickets costing USD 2,000. If the full balance is paid by the due date, no interest is charged. The merchant pays approximately 2.5% (USD 50) as an interchange fee, which is shared between American Express and the card-issuing bank.
Related terms: Issuing (Payments), Merchant Services, Consumer Finance, Payments Processing
Credit Union
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“The credit union movement deserves great praise because it has taught people to save, to borrow wisely, and to manage their own financial affairs.”
— John F. Kennedy
Definition: A credit union is a member-owned, not-for-profit financial cooperative that provides traditional banking services such as savings accounts, checking accounts, and loans. Unlike commercial banks, credit unions are owned by their members (depositors), who each have one vote in the organization’s governance regardless of how much money they have deposited. Credit unions typically offer more favorable interest rates on savings and loans compared to commercial banks because they are not driven by shareholder profit motives.
In context: Wolters Kluwer (WKL.AS, a European equity index) serves “banks, non-bank lenders, credit unions, insurers, and securities firms” through its Financial & Corporate Compliance segment, providing compliance solutions.
Real-world example: A local teachers’ credit union accepts deposits from its members (teachers and school staff) and uses those funds to offer mortgages and auto loans at interest rates 0.5-1% lower than nearby commercial banks. Members elect a volunteer board of directors to oversee the credit union’s operations.
Related terms: Commercial Banking, Retail Banking, Non-Bank Lender
Digital Banking
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“Banking is necessary, banks are not.”
— Bill Gates
Definition: Digital banking refers to the digitization of all traditional banking activities and services that were historically only available to customers visiting a physical bank branch. This includes opening accounts, making deposits, transferring money, applying for loans, paying bills, and managing investments — all done through online platforms and mobile applications. Digital banking goes beyond simply having a website; it represents a fundamental transformation of the banking experience, often featuring real-time account management, AI-powered personal finance tools, and seamless integration with payment systems.
In context: Banco Bilbao Vizcaya Argentaria (BBVA.MC, a European equity index) engages in “digital banking” alongside traditional banking services. BNP Paribas (BNP.PA, a European equity index) provides “digital banking services” through its Commercial, Personal Banking & Services division. Banco Santander (SAN.MC, a European equity index) offers “digital payments and technology solutions.” KDDI Corporation (9433.T, an Asia-Pacific equity index) offers “finance, energy, and LX through its multi-brands.”
Real-world example: A bank customer opens a savings account entirely through a mobile app, completes identity verification by scanning their passport with their phone camera, deposits money via instant transfer, and uses the app’s AI advisor feature to create a personalized savings plan — all without ever visiting a branch.
Related terms: Fintech, Retail Banking
Financial Holding Company
Definition: A financial holding company is a type of holding company that owns or controls one or more financial institutions, including banks, insurance companies, securities firms, and other financial entities. Financial holding companies are subject to specific regulatory requirements, including capital adequacy standards and consolidated supervision by financial regulatory authorities. The structure allows diversified financial groups to offer a comprehensive range of financial products and services across banking, insurance, and securities under one corporate umbrella.
In context: JPMorgan Chase & Co. (JPM, a US equity index) “operates as a bank and financial holding company.” Morgan Stanley (MS, a US equity index) operates as “a financial holding company.”
Real-world example: A financial holding company owns a commercial bank, an insurance subsidiary, a brokerage firm, and an asset management company. The holding company structure allows each subsidiary to specialize in its area while the parent coordinates strategy and allocates capital across the group.
Related terms: Bank Holding Company, Holding Company
Leasing
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“Why own when you can lease? The value is in the use, not the possession.”
— Thomas J. Watson
Definition: Leasing is a contractual arrangement in which the owner of an asset (the lessor) grants another party (the lessee) the right to use the asset for a specified period in exchange for regular payments. Leasing is an alternative to purchasing, allowing businesses and individuals to use expensive equipment, vehicles, real estate, or other assets without bearing the full cost of ownership. There are two main types: operating leases (short-term, no ownership transfer) and finance leases (long-term, often with an option to purchase the asset at lease end).
In context: BMW (BMW.DE, a European equity index) provides “leasing that include insurance and service products.” Siemens AG (SIE.DE, a European equity index) offers “leasing, lending, and working capital” through its Financial Services segment. Tesla (TSLA, a US equity index) offers “leases” for its vehicles and solar energy systems. Seven & i Holdings (3382.T, an Asia-Pacific equity index) is involved in “leasing” businesses.
Real-world example: A law firm leases a fleet of 50 luxury sedans from BMW for its partners under a 3-year operating lease. The firm pays EUR 600 per month per vehicle, which includes maintenance and insurance. At the end of 3 years, the cars are returned to BMW, and the firm can lease new models.
Related terms: Consumer Finance
Margin Lending
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“Do not borrow money to buy stocks — the margin call will come at the worst possible time.”
— Jesse Livermore, Reminiscences of a Stock Operator (1923)
Definition: Margin lending is a type of borrowing where an investor uses securities they already own as collateral to borrow money from a brokerage or bank to buy additional securities. The investor’s existing portfolio serves as the margin (collateral), and the lender charges interest on the borrowed amount. Margin lending amplifies both potential gains and losses, making it a higher-risk strategy. If the value of the collateral falls below a certain threshold (a margin call), the investor must deposit additional funds or sell securities to restore the required margin level.
In context: Commonwealth Bank of Australia (CBA.AX, an Asia-Pacific equity index) provides “margin lending” services. Westpac Banking (WBC.AX, an Asia-Pacific equity index) offers “margin lending” alongside other financial services.
Real-world example: An investor with AUD 100,000 in shares uses margin lending to borrow an additional AUD 50,000 to buy more stocks. If the portfolio value rises to AUD 180,000, the investor has a profit of AUD 30,000 on a AUD 100,000 investment. But if the portfolio drops to AUD 120,000, the loss is AUD 30,000 against the original investment of AUD 100,000, and the broker may issue a margin call.
Related terms: Brokerage, Collateral, Prime Brokerage
Mortgage
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“The thirty-year fixed-rate mortgage is the most successful financial product in American history.”
— Lewis Ranieri
Definition: A mortgage is a loan used to purchase or refinance real estate, in which the property itself serves as collateral for the loan. The borrower makes regular payments (typically monthly) over a period of 15 to 30 years, consisting of principal and interest. If the borrower fails to make payments, the lender can foreclose on the property. Mortgages are the primary means by which individuals and families finance home purchases. Banks, credit unions, mortgage companies, and government agencies are the main providers of mortgage loans.
In context: Bank of America (BAC, a US equity index) offers “residential mortgages and home equity loans” through its Consumer Banking segment. ING Groep (INGA.AS, a European equity index) provides “consumer lending products, such as residential mortgage loans.” Commonwealth Bank of Australia (CBA.AX, an Asia-Pacific equity index) provides “home loans.” JPMorgan Chase (JPM, a US equity index) offers “mortgage origination and servicing activities.”
Real-world example: A young couple purchases their first home for USD 350,000 with a 20% down payment (USD 70,000) and a 30-year fixed-rate mortgage at 6.5% interest. Their monthly payment is approximately USD 1,770, and over the life of the loan, they will pay about USD 357,000 in interest in addition to repaying the USD 280,000 principal.
Related terms: Consumer Finance, Retail Banking, Securitization, Collateral
Non-Bank Lender
Definition: A non-bank lender is a financial institution that offers loan products and financing services but does not hold a traditional banking license and therefore does not accept deposits. Non-bank lenders include mortgage companies, fintech lenders, credit companies, and specialty finance firms. They obtain their funding from capital markets, securitization, credit facilities from banks, or their own balance sheets. Non-bank lenders often serve market segments underserved by traditional banks, offering more flexible underwriting criteria or specialized products, though sometimes at higher interest rates.
In context: Wolters Kluwer (WKL.AS, a European equity index) serves “banks, non-bank lenders, credit unions, insurers, and securities firms” through its Financial & Corporate Compliance segment.
Real-world example: A fintech non-bank lender offers unsecured personal loans entirely through a mobile app. It uses AI and alternative data (such as utility bill payment history and educational background) to assess creditworthiness, often approving borrowers who might be rejected by traditional banks. It funds these loans through warehouse credit facilities provided by larger banks.
Related terms: Consumer Finance, Fintech, Securitization, Retail Banking
Retail Banking
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“The branch of the future is in your pocket.”
— Brett King, Bank 4.0 (2018)
Definition: Retail banking, also known as consumer banking or personal banking, is the provision of financial services directly to individual consumers rather than corporations or institutions. Retail banking products and services include checking and savings accounts, personal loans, mortgages, credit cards, certificates of deposit, and basic investment products. Retail banks serve customers through branch networks, ATMs, online platforms, and mobile applications. Retail banking generates revenue through interest margins (the difference between lending and deposit rates), fees, and cross-selling of financial products.
In context: Banco Bilbao Vizcaya Argentaria (BBVA.MC, a European equity index) offers “traditional retail” banking. ING Groep (INGA.AS, a European equity index) operates “Retail Netherlands, Retail Belgium, Retail Germany, Retail Other” segments. Commonwealth Bank of Australia (CBA.AX, an Asia-Pacific equity index) provides “retail and commercial banking services.” JPMorgan Chase (JPM, a US equity index) offers retail products through its “Consumer & Community Banking” segment.
Real-world example: A college graduate opens a checking account, sets up direct deposit, gets a debit card, downloads the bank’s mobile app, and applies for a credit card — all at a single branch visit. Over the next few years, the same bank helps them open a savings account, get a car loan, and eventually obtain a mortgage, building a long-term banking relationship.
Related terms: Commercial Banking, Consumer Finance, Digital Banking, Mortgage
Transaction Banking
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“The plumbing of global commerce is transaction banking — it moves the money that moves the world.”
— Gottfried Leibbrandt
Definition: Transaction banking is the set of banking services that facilitate commercial transactions and financial flows for corporate and institutional clients. It encompasses cash management, payments, collections, trade finance, foreign exchange, securities services, and supply chain financing. Transaction banking is typically a high-volume, fee-based business that generates stable, recurring revenue for banks. It builds deep client relationships because once a company’s treasury operations are integrated with a bank’s transaction banking platform, switching costs are high.
In context: Banco Santander (SAN.MC, a European equity index) provides services through its “transaction banking” capabilities. UniCredit (UCG.MI, a European equity index) provides “transactional and risk management” services. Goldman Sachs (GS, a US equity index) provides “transaction banking and other services, such as deposit-taking, payment solutions, and other cash management services.”
Real-world example: A multinational retailer uses a bank’s transaction banking platform to manage its global payment operations. The platform processes supplier payments in 30 currencies, collects customer payments through various channels, provides real-time cash position visibility across 50 countries, and automatically executes FX transactions for cross-border payments.
Related terms: Cash Management, Treasury Services, Trade Finance, Payments Processing
Cash Management
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“Never take your eyes off your cash flow because it is the lifeblood of business.”
— Richard Branson
Definition: Cash management refers to the corporate treasury function of collecting, managing, and investing a company’s cash flows efficiently. Banks offer cash management services to corporate clients to help them optimize their liquidity positions, streamline payment and collection processes, manage bank accounts across multiple locations and currencies, and invest surplus cash. Effective cash management ensures a company has enough liquid funds to meet its obligations while maximizing the return on idle cash balances.
In context: ING Groep (INGA.AS, a European equity index) provides “cash management, trade and corporate finance, and treasury services.” Nordea Bank (NDA-FI.HE, a European equity index) offers “payments, cash management, cards, working capital management.” DBS Group (D05.SI, an Asia-Pacific equity index) provides “cash management, trade finance, and securities and fiduciary services.” ANZ Group (ANZ.AX, an Asia-Pacific equity index) offers “cash management solutions, deposits, payments, and clearing.”
Real-world example: A multinational corporation with bank accounts in 40 countries uses a bank’s cash management service to automatically sweep excess balances from subsidiary accounts into a central treasury account each evening, ensuring optimal liquidity and maximizing interest earned on idle funds.
Related terms: Treasury Services, Transaction Banking
Treasury Services
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“The corporate treasurer’s job is to make sure the company never runs out of cash — everything else is secondary.”
— Craig Martin
Definition: Treasury services are financial products and solutions offered by banks to help corporations manage their cash flows, liquidity, and financial risk. Core treasury services include cash pooling (consolidating cash balances), payment and collection processing, liquidity management, investment of surplus funds, foreign exchange management, interest rate risk management, and bank relationship management. Corporate treasury departments are responsible for ensuring the company has adequate liquidity to meet its obligations while optimizing the return on excess cash and minimizing financial risk.
In context: Nordea Bank (NDA-FI.HE, a European equity index) provides “treasury and markets products.” BNP Paribas (BNP.PA, a European equity index) offers “cash management, and financial advisory services” to corporate clients. Mitsui & Co. (8031.T, an Asia-Pacific equity index) provides “accounting and treasury-related services.” Banco Santander (SAN.MC, a European equity index) offers “debt capital markets, global transaction banking.”
Real-world example: A multinational corporation’s treasury department uses a bank’s treasury management system to forecast daily cash positions across all subsidiaries, invest overnight surplus in money market instruments, execute foreign exchange hedges for anticipated receivables in emerging market currencies, and ensure compliance with debt covenants.
Related terms: Cash Management, Risk Management, Transaction Banking
Trust Banking
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“The trustee’s first duty is to the beneficiary — not to the bank, not to the market, not to himself.”
— Scott Fitzgibbon
Definition: Trust banking involves a bank acting as a trustee or fiduciary agent to manage assets, administer trusts, and execute the wishes of individuals or institutions according to a trust agreement. Trust services include managing investment portfolios, administering estate plans, distributing income and principal to beneficiaries, providing tax reporting, and safekeeping valuable documents and assets. Trust banking is closely related to private banking and wealth management, serving high-net-worth individuals, families, and institutional clients.
In context: Mitsubishi UFJ Financial Group (8306.T, an Asia-Pacific equity index) provides “trust banking and securities products and services.” Mizuho Financial Group (8411.T, an Asia-Pacific equity index) provides “trust, securitization and structured finance, and stock transfer agency” services. Wells Fargo (WFC, a US equity index) provides “trust and fiduciary products and services.”
Real-world example: A wealthy individual establishes a trust with a bank as trustee to manage USD 30 million for the benefit of her grandchildren. The bank invests the trust assets according to the trust document’s guidelines, distributes income to the grandchildren for education and living expenses, and eventually distributes the principal to them when they reach age 35.
Related terms: Private Banking, Wealth Management
Wholesale Banking
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“Large-scale banking is really nothing more than organized trust.”
— Walter Bagehot, Lombard Street (1873)
Definition: Wholesale banking refers to banking services provided to large institutional customers including corporations, government agencies, other banks, pension funds, and institutional investors. Wholesale banking services include large-scale lending (syndicated and bilateral loans), deposit products, trade finance, cash management, foreign exchange, custody services, and capital markets products. Wholesale banking differs from retail banking in the size and sophistication of its client base and the complexity of its product offerings.
In context: Banco Bilbao Vizcaya Argentaria (BBVA.MC, a European equity index) offers “wholesale” banking alongside retail and investment banking. Mitsubishi UFJ Financial Group (8306.T, an Asia-Pacific equity index) operates through segments including “Global Corporate & Investment Banking” serving wholesale clients. Sumitomo Mitsui Financial Group (8316.T, an Asia-Pacific equity index) operates a “Wholesale Business Unit” offering syndicated loans, structured finance, and derivatives.
Real-world example: A wholesale banking division provides a Fortune 500 company with a USD 2 billion revolving credit facility, manages its global cash pooling across 25 countries, processes thousands of supplier payments daily through its transaction banking platform, and provides foreign exchange hedging for the company’s multi-currency revenue streams.
Related terms: Commercial Banking, Retail Banking, Transaction Banking, Loan Syndication
Wholesale Financing
Definition: Wholesale financing is a type of lending provided by financial institutions to businesses (particularly dealerships and distributors) to finance their inventory of goods for resale. In the automotive industry, wholesale financing (also called floor plan financing or dealer financing) allows car dealerships to stock vehicles on their lots without paying the full purchase price upfront. The dealer pays interest on the financing until the vehicle is sold to a consumer, at which point the wholesale loan for that unit is repaid.
In context: Toyota Motor (7203.T, an Asia-Pacific equity index) provides “wholesale financing” alongside retail financing and leasing services. BMW (BMW.DE, a European equity index) provides “financing for dealership and customer deposits.” Honda Motor (7267.T, an Asia-Pacific equity index) provides “wholesale financing services to dealers.”
Real-world example: A Toyota dealership receives a shipment of 50 new vehicles worth USD 2 million. Instead of paying Toyota cash upfront, the dealership uses a wholesale financing arrangement from Toyota Financial Services. The dealership pays monthly interest on the outstanding inventory. When a customer buys a car for USD 40,000, the dealership repays the wholesale loan for that unit and pockets the profit margin.
Related terms: Consumer Finance, Leasing
Working Capital
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“Revenue is vanity, profit is sanity, but cash is king.”
— Alan Miltz
Definition: Working capital is the difference between a company’s current assets (cash, accounts receivable, inventory) and its current liabilities (accounts payable, short-term debt, accrued expenses). It represents the short-term liquidity available to fund day-to-day operations. Positive working capital means the company can pay its short-term obligations and invest in its operations. Working capital management involves optimizing the levels of cash, receivables, inventory, and payables to ensure smooth operations while minimizing the cost of capital.
In context: SAP SE (SAP.DE, a European equity index) provides “Taulia solutions for working capital management.” Nordea Bank (NDA-FI.HE, a European equity index) offers “working capital management” services. Siemens AG (SIE.DE, a European equity index) provides “leasing, lending, and working capital” through its Financial Services. ANZ Group (ANZ.AX, an Asia-Pacific equity index) provides “working capital and liquidity solutions.”
Real-world example: A manufacturing company has USD 5 million in cash, USD 8 million in receivables, and USD 4 million in inventory (total current assets: USD 17 million). It owes USD 6 million to suppliers and USD 3 million in short-term loans (total current liabilities: USD 9 million). Its working capital is USD 8 million (USD 17M - USD 9M), indicating sufficient liquidity to operate smoothly.
Related terms: Cash Management, Factoring, Trade Finance, Treasury Services