Matching working capital funding policy
A matching policy seeks to finance long-lived assets and permanent working capital with longer-term funds while using shorter-term finance for temporary fluctuations. The aim is to reduce maturity mismatch without necessarily holding long-term funding for every seasonal peak. Actual maturities, renewal rights and cash-flow uncertainty must be considered; nominally matching a loan term to an asset's life does not guarantee timely cash receipts or eliminate liquidity risk. Equity can be part of long-term funding.
Worked example
A company uses long-term capital for equipment and its permanent inventory requirement, and an overdraft for a temporary seasonal stock increase. It still forecasts whether cash will be available when the overdraft must be repaid.
Common mistake
Assuming all matching finance must be long-term debt, or that similar nominal maturities guarantee that repayment cash flows match.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |