A(n) contingency fund is a reserve or rainy-day fund with money set aside to be used for unexpected expenses or when normal income has been disrupted.
The role of the contingency fund is to improve a company's financial stability by developing a safety net that the firm can use to fill emergency needs. This "rainy day" fund also be used to reduce the need to take out high-interest loans, such as credit cards, to cover unexpected expenses.
A contingency fund can be defined as a sum of reserve money set aside and allocated for use in an emergency but also to cover unforeseen expenses and unexpected outflows. This money reserves should help in situations in which some business interruption or disaster result in extraordinary expenses. This fund is also called contingency reserve.
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