Entrepreneurs are constantly looking to expand their businesses, but they may not be aware of the best methods for doing so. The best way to grow is through effective management of resources, which includes managing working capital.
So, a person running a business must know what working capital is and how it can help. In understanding what it is, they will be better able to deal with it and run a business without having money problems.
What is working capital?
As the name implies, working capital is the difference between the company’s current assets and current liabilities. If a company’s working capital is negative, its activities may grind to a halt.
Working capital shortages can be caused by many things, like unpaid bills, cyclical sales patterns, periods of low revenue, and other macroeconomic issues that pressure the supply chain’s ability to work.
Working capital loans are a great way to deal with unexpected working capital shortages. Understanding what is working capital and how it works is essential, but understanding how to manage it efficiently and properly is also essential. Listed below are a few tips to help you along the journey.
- Use data analytics to monitor your company’s progress
Analytics can help you manage your working capital, make management reports, keep an eye on compliance in different parts of your business, and look at how you run your business all at once. An in-depth look into your company’s operations may help you determine whether they align with your financial objectives.
When making business decisions, businesses are increasingly turning to data since it is a more trustworthy source of information than personal experience. Your statements and pledges will be more credible to investors and loan providers if you have enough data to back them up.
- Improve your inventory management
Well-managed inventory management may be the most effective factor for improving working capital. Reducing slow-moving inventory, boosting inventory turnover rates, and avoiding stockpiling contribute to a higher net working capital figure.
- Improve the Purchasing Process
The procurement process must involve planning, budgeting, and reviewing purchases. The business must also carefully monitor unplanned purchases. To do this, it needs to set up e-procurement procedures and a central purchasing process or authority metrics in vendor selection and order approval, among other things.
- Incentivize receivables
It is important for the company to have a good collection system, such as a good invoicing system, processes for customer relations, debtor management, payment follow-up, and ways to discourage or disincentivize bad debts, among other things.
- Vendors should be managed effectively
Effective management of your business’s most important partnerships is important in boosting working capital. Companies that pay their suppliers on time have stronger relationships with them and are in a stronger bargaining position for better deals, payment terms, and discounts with their suppliers.
- Working capital finance can be used as a solution
It’s smart to have a bank line of credit (such as an overdraft or a cash credit) to cover any short-term working capital gaps. Also, look into other working capital finance options such as bill discounting and invoice factoring. Working capital loans are a fantastic way to cope with unforeseen cash flow issues.
Leading NBFCs and financial institutions offer high-value unsecured business loans that come with simple eligibility and minimal documents. One of the leading NBFCs, Bajaj Finserv offers unsecured business loans that comes with quick approval and a hassle-free process.
With this business loan, you get attractive features such as the Flexi facility that lets you withdraw funds multiple times from your sanctioned limit while you pay interest only on what you use.