Effective working capital management is the foundation of any successful company efforts, as it aligns the company’s objectives, profitability, and liquidity. By making smart financial decisions, you can ensure that your assets and liabilities stay in balance and that you still have enough money to meet your daily needs.
You can increase your account receivables, trade payables, and inventories – the main sources of working capital. You may improve the efficiency with which you handle your working capital by taking the steps listed below:
- Take on long-term debt
Businesses can seek a long-term loan from any bank that would lend to them to satisfy their working capital needs for a certain period. It raises the amount of accessible cash in the company’s balance sheet, current assets are increased, but current liabilities are not significantly increased.
It is also possible to boost your company’s liquidity and working capital by converting short-term debt into long-term debt without negatively influencing your company’s leverage ratios. Your company will save money and reduce stress by refinancing short-term debt with a longer-term loan.
- Increasing current assets by selling off non-profitable assets for immediate cash
The best time to sell a piece of equipment is when it is not in good condition and not productive enough. To increase your working capital management for your business success, you must ensure that earnings exceed expenses. If your asset isn’t lucrative, you should consider selling it.
- Reduce current liabilities by doing a thorough review of costs
Cash flow is the most important factor in determining a company’s worth.
A strong working connection with your suppliers can help you receive exceptional offers and win their confidence. If your company runs out of funds, your relationship will help you get some leeway.
Many suppliers may provide you with a discount on stock pricing for your repeat business.
- Analyze and optimize inventory management
Prudent inventory management guarantees that businesses can handle swings in demand and daily operations without putting a lot of money into any one resource.
Excessive inventory means that more funds are tied to the company. It’s important to look at and improve inventory management to cut down on overstocking and the risk that inventory will have to be written off.
This raises the risk of unsold inventory and depreciation, reducing inventory value. Better inventory management will result in better working capital management.
Also, an inventory shortfall must be avoided at all costs since a shortage would reduce company revenue.
- Automate the collection of receivables and the tracking of payments
Automating payables and receivables procedures can achieve cash efficiency and faster cash conversion cycles. Electronic payments are a well-known trend.
Automating your company accounting might assist you in identifying prompt payers. Give these clients incentives to pay their bills. It will help you build relationships with your consumers and maintain a healthy financial position.
This may improve cash flow by minimizing the need to borrow money for day-to-day operations, which reduces the requirement for working capital.
- Apply for a short-term working capital loan from Bajaj Finserv
A short-term working capital loan from a leading lender can be a quick solution to get the funds to meet your daily operational needs. One of the leading NBFCs, Bajaj Finserv, offers unsecured business loans with quick approval and minimal paperwork to help in working capital management.
In addition, this unsecured business loan comes with the attractive Flexi facility that allows you to better manage your working capital requirements by letting you withdraw from your sanction limit as and when you need and prepay in part at no additional cost.