A slight negative change in your working capital can harm your business plan. For running a business, you need money to meet your current and short-term expenses – which is known as working capital. Whether you run a small or a big business, you must manage your working capital.
When you improve on working capital management, you generate more cash for your business, which raises profitability and potential for growth.
However, though working capital appears in simple terms, your business can collapse due to mismanagement. Ensure you get an insight into where your working capital stands by determining your capital working ratio, which measures your business’s short-term financial health.
Do you run a business and meet yourself struggling to pay employees and vendors and finance other short-term business needs?
You may seek unsecured business loans to improve your working capital.
However, getting a loan may be expensive and can take longer. Instead, you need the tips below to manage your working capital sustainably and effectively.
Best Tips for Managing Working Capital for Immediate Results
Reducing Inventory and Increasing Inventory Turnover
You can improve your working capital by managing your inventory well. If you have a slow-moving stock, you can avoid stockpiling, which means more freed-up cash flow. Just-in-time inventory management is one of the techniques to control your stock.
Wondering what just-in-time is? You order inventory as needed for production or when your customer requires it instead of buying to stock.
Remember, it is hard to run your business without working capital. Therefore, meeting your short-term expenses is among the importance of working capital.
However, if you’ve higher working capital levels, you use the money to buy with discounts offered by your suppliers, meaning more profits. Therefore, avoid tying up your capital in excess inventory.
You also reduce overstock risks when you invest in inventory based on demand.
Get Adequate Financing
Using unsecured business loans is another way to manage your working capital better. Getting working capital financing increases your working capability, as you will have enough liquidity to finance the current operations without excessive risk.
But first, you should analyze your working capital KPIs to determine your capital working needs. When you understand the capital you require, you can easily find the right financing solution.
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An easy way to get adequate financing is to find an alternative lender to provide a working capital loan. You can afford quick and cheap access to unsecured business loans if your business enjoys good revenue generation and long-term efficiency.
Shift to Electronic Receivables and Payables
Do you have a good collection system in your business? You can shorten the receivables period through an efficient electronic system.
Effective working capital management involves sending out invoices as soon as possible. Using accounts receivables technology eliminates inefficiencies that delay sending invoices to your debtors.
Remember, lost invoices, management of high volumes of invoices, and manual processing cause delay, leading to a working capital crunch.
However, an electronic system can eliminate such issues and send a payment reminder to your debtors to enhance cash flow. In addition, you’ll reduce costs and save on rebate structures by automating payment and electronic payment processes, which translates into more working capital.
Build a Culture of Effective Capital Management by Sharing Financial Data
Do you often share financial data with your purchasing, finance, and operations employees? Don’t forget that such staff directly affects working capital performance. You should sit with employees handling critical departments and make them understand the importance of working capital management.
Share budgets, sales reports, daily working capital reports, and inventory calculations with your workers. You can offer incentives to build more accountability and commitment from employees to manage working capital.
Making working capital management a priority in your business will be an idea for success. You can develop defined objects and goals linked to cash management, implement, analyze the results and discuss working capital management to achieve the best results.
Improving management of your working capital generates more cash for your business growth. To effectively manage your working capital, ensure a strategic approach to account receivables, payables, and inventory.
Building a culture and involving your staff in managing working capital is a long-term solution. Share essential financial data and let your staff know the importance of working capital management, and reward them for earning their commitment.
Head over to Poonawalla Fincorp to get a working capital loan at a attractive rate to finance your short-term expenses.