In the seasonal industries the level of working capital requirement will not be similar all through the year. In times of off season, the working capital requirement and the levels of investment in current assets and liabilities are very low. But during season, the firm's requirement of working capital is at peak level. For example, the sugar industry, the crushing season in a year will remain for 5 to 6 months time. During the season the plant is expected to work at full capacity with triple shift working and the requirement of stocks of raw martial is very high and resultant increase in stocks of sugar. The requirement for payment of labor, expenses, maintenance, finished stock inventory are higher. In off season, the plant will be closed and upkeep and maintenance of plant will be incurred and the level of current assets and current liabilities comes down and the working capital requirement would be very low. For this they have to take the following precautions:

1) Preparation of projected cash flow statement showing of cash flows for peak season, normal season and off season requirement.

2) Make proper arrangement with the banks and other sources of finance to meet the short term need of season.

3) Make proper arrangement for meeting the contingencies of higher level requirement than the projected level of requirement.

4) Proper and careful assessment of working capital requirement for the season and off season requirement.

Factor Affecting the Working Capital Requirements of the Firm

1) Nature or Character of Business: The amount of working capital is basically related to the nature and volume of the business. In concerns where the cost of raw materials to be used in the manufacture of a product is very large in proportion to its total cost of manufacture, the requirements of working capital will be large. On the contrary, concerns having large investments in fixed assets require lesser amount of working capital.

2) Size of Business/Scale of Operations: The working capital requirements of a concern are directly influenced by the size of its business which may be measured in terms of scale of operations. Greater the size of a business unit, generally larger will be the requirements of working capital.

3) Production Policy: A firm marked by pronounced seasonal fluctuation in its sale may pursue a production policy which may reduce the sharp variations in working capital requirements. For example a manufacturer of air conditioners may maintain steady production through out the year rather than intensify the production activity during the peak business season. Such decision may dampen the fluctuations in working capital requirements.

4) Manufacturing Process/Length of Production Cycle: In manufacturing business, the requirements of working capital increase in direct proportion to length of manufacturing process. Longer the process period of manufacturing, larger is the amount of working capital required.

5) Supply Variations: In seasonal industries raw material is not available throughout the year. They have to buy raw materials in bulk during the season to ensure an uninterrupted flow and process then during the entire year.

6) Availability of Credit: If the firm gets credit on liberal terms it will require less WC since it can always pay its creditors later and vice-versa.

7) Inventory: In business like sugar industry, one needs to store a large amount of raw material and finished goods because of its seasonality. Businesses are not able to sale whole finished product, so more working capital is required.

8) Working Capital Cycle: In a manufacturing concern, the working capital cycle starts with the purchase of raw material and ends with the realization of cash from the sale of finished products. The speed with which the working capital completes one cycle determines the requirement of working capital i.e., longer the period of the cycle larger is the requirement of working capital.

9) Rate of Stock Turnover: There is a high degree of inverse co-relationship between the quantum of working capital and the velocity or speed with which the sales are affected. A firm having a high rate of stock turnover will need lower amount of working capital as compared to a firm having a low rate of turnover.

10) Credit Policy: The credit policy of a concern in its dealings with debtors and creditors influence considerably the requirements of working capital. A concern that purchases its requirements on credit and sells its products/services on cash requires lesser amount of working capital.

11) Rate of Growth of Business: The working capital requirements of a concern increase with the growth and expansion of its business activities.

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