The day-to-day operations of any business depend greatly on its working capital, especially for SMEs and startups where having strong control of the business finances is important for keeping the business afloat. The working capital of any business is the difference between the current liabilities from its current assets. In other words, working capital is essentially the difference between what it owes to its creditors and the assets it owns. The sources of working capital include short-term loans, cash credit, dividends, etc.
A good working capital ensures the smooth operation of a business by making sure the day-to-day expenses are met and the production of goods and services is carried out without any problems. Since we have established now why is working capital important, what it stands for, and its sources, let’s now have a look at ways to better manage the working capital of a business:
Ways to Better Manage Your Working Capital
Give Incentives to Debtors
Allowing debtors a discount for early payment of debts will allow you to maintain a steady cash flow and prevent bad debts.
Make Timely Payment to Creditors & Suppliers
Paying off your suppliers and creditors in time will not only maintain your market rapport but also allow you to receive better deals and more cash discounts from them for future transactions.
Control Your Expenses
Small expenses may not seem so relevant, but they may mount up with time and cause a big dent in your working capital. Keeping your miscellaneous expenses in check allows you better control over your working capital too.
Control Your Inventory
Make sure that you manage your stock inventory in an organized manner. Both excess and short stock can affect your sources of working capital and the growth of your business. Avoid stocking products that don’t sell much, and stock ahead of seasonal market booms.
Automate Incoming & Outgoing Payments
Automating payments allows you to track the inflow and outflow of cash easily. Keep track of accounts that don’t pay debts at the time, and give incentives to collection teams for timely debt collection.
Check Interest Payments
Have a look at the interest you’re paying on different loans you have taken for your business. Check to see if there’s room for a reduction in interest rates or early repayment schemes to bring down the number of future instalments.
Maintain Working Capital Company-wide
Make sure that your entire company does its part in maintaining the working capital. Controlled expenses from all departments will allow you to have a larger amount of working capital.
Consider Taking Short-term Working Capital Loan
If you’re running short of working capital or want to maintain a better cash flow for your business, you can take a short-term working capital loan. This source of working capital will allow you to add the necessary funds for the day-to-day operations of your business without you having to worry a lot about maintaining your finances.
Taking a working capital loan is beneficial especially for small businesses and startups where there’s a need for constant funds for the growth and survival of the business. Nowadays, leading financial institutions like Bajaj Finserv offer business loans of up to Rs. 45 lakh at affordable rates.
To expedite the loan process, this NBFC also offers pre-approved deals on its products such as business loans, personal loans, home loans. You can simply avail of this pre-approved deal by sharing your contact details.