Keeping track of cash flow and expenses is critical for business growth. It helps you capitalise on the immediate business needs without affecting the basic expenses. It helps you analyse the actual investment requirements to run operations smoothly.

Not having a plan in place could lead to negative cash flow and liquidity. Therefore, whether you are a startup or an established firm, you must ensure practical working capital strategies are in place. It helps you deal with any unforeseen financial situation without affecting the momentum.

What do you mean by working capital?

Working capital is the short-term cash reserve that a business needs to run its basic operations smoothly. It is the difference between the company’s total assets and liabilities. Under this, negative working capital occurs when liabilities exceed assets.

Alternatively, positive working capital is when the assets are more than the business’s liabilities. It helps support the ongoing operation without affecting future investments.  However, high working capital is not always a good thing. It indicates that the business does not utilise its assets well towards business growth. 

5 Tips to improve working capital and promote growth

Managing the inventory is the first thing to optimise your working capital. Identify whether you have excessive stocks. It may lead to unnecessary wastage as you cannot use the stock after expiry. Alternatively, low inventory may affect sales and customer demand.

Thus, one must optimise the inventory by ensuring only what you need. It will help you save money on stocking up and physical storage costs. Moreover, it brings down inventory management insurance costs.  Here are other aspects which may help improve the working capital condition:

1)     Borrow funds to boost working capital

You need capital flexibility to cover big-ticket business needs like paying upfront to a supplier for a heavy project, equipment purchase, marketing, etc. Insufficient cash means tapping the assets frequently. It may lead to negative working capital if you use up all your assets but cannot fulfil the need. Instead of using 100% of the cash reserve, finance a portion of the requirement.

Check verified working capital loans for the purpose. It prevents you from affecting the cash and profit reserve. You may get the desired sum immediately to meet your needs without delay.  You can use the loan to cover short-term business needs like- payrolls, hiring, covering rent, inventory expenses, etc. You can also use it for paying critical debts.

2)     Pay the vendors on time

It may not come to you naturally, but being regular with vendor payments improves working capital. It helps you keep positive relations with suppliers and manufacturers. Companies releasing payments to suppliers face multiple advantages.

It helps them fetch better rates, discounts, and an upper hand in price negotiation. It may be a time and money-saving approach.

You may also promise large orders and bulk purchases and improve the credit period. It will help the vendors engage with you for a long time.

3)     Clear the invoices as quickly as possible

Having straightforward and stringent invoicing helps you get timely payments. Some clients with whom you share a great rapport and have been doing business for a long time may delay payments. You cannot force them to pay on a specific date, as it may hurt your long-term relations.

However, you can surely send personalised emails regarding the purpose behind seeking payment timely. You can reveal the struggles you face due to the delay in payments. Your clients may understand or relate if they can relate to the situation. Hence, they may try to clear the dues on the specific invoice clearance date.

You can further take important initiatives to optimise the invoicing process. Here are some tips that might help:

·        Shorten the payment receivable timeline

·        Set strict penalties for late client payments

·        Re-check the total costs before releasing the invoice

·        Send timely reminders to customers to pay their dues

4)     Release the value in the unpaid invoices

A business’s sales ledger is generally an expensive asset. You can use it to boost your working capital for the long term. You can achieve this if you need urgent money but clients have not cleared the payments yet. The technique helps you leverage the unpaid invoices against the cash. Yes, you may get instant money on invoices.

Sometimes, you may get 80-90% of the total value of the unpaid invoices as cash. For that, you must connect with an expert business finance broker online. He removes the hassle by understanding your situation, finding the lender, and helping you with documentation.

 You don’t need to worry about the costs as the person helps you get the most affordable lender for your requirements. He shares a huge gamut of direct lenders from which he chooses the one that may help you correctly. What could be better than getting the deal done quickly without engaging in hassle? Always explore the best ones by analysing the industry, years of expertise and successful projects.

5)     Evaluate the common debtors

Every company has some clients who get habitual to paying late. You may not have noticed this, but it largely affects your working capital. What if you needed a lump sum to update the seating space, but some clients don’t pay?

It may delay the process and may aggravate the situation, too. Therefore, noticing the client’s payment patterns is important.  It will help you re-access the contract and redefine the contract terms with those clients.

Make sure not to give a too-long window to clear the debts. It should be realistic to meet your business’s usual bills and payments without affecting the deadline. Implement rigorous credit checks before proceeding further with a new client.

It helps you analyse the probability of getting the payments timely. If some clients are reluctant to pay on the due date, you may take legal action too. It should be the last resort after continuous reminders and warnings.

Bottom line

These are some strategies to drive working capital growth. Identify the current cycle and the loopholes. Where do you get stuck in the cycle? Are the late client payments affecting your business goal achievement timelines? If yes, then release stringent payment terms or re-evaluate the constant debtors. Alternatively, you must pay the suppliers, manufacturers and other persons involved in a timely manner. It retains the reliability of relationships and achieves goals without worries.