The capital required to run the daily operations of your business is termed as the working capital. It is calculated as the difference between the current assets and the current liabilities.
If the current assets are more than the current liabilities, then the company has adequate cash flow to support the business growth. However, if the liabilities weigh more than your assets, then the inadequate cash flows can bring your business operations to a standstill.
Let’s Explore the Ways in Which Working Capital is Important Working Capital for Utility Bills and Payroll
Bills and wages are the most important costs to the company. Payment of rents/lease, electricity bills, and other related costs, consumes a major portion of the working capital. Another large chunk is utilized for paying the remuneration to the staff, business licences, and fees for consultation (if any). While it may take time to receive the payments by the customers, these monthly expenses cannot be delayed.
While it may take time to receive the payments by the customers, these monthly expenses cannot be delayed.
If the cash, and the proceeds from short-term investments are falling short, then working capital loans can be opted for. Your company might receive payments eventually, but if you are not sure, you can choose a flexible credit line facility. A Flexi business loan allows you to withdraw as much money you require from your approved loan limit. You need not use the whole loan amount. You will be charged interest on the amount that you utilise, and not the whole loan amount.
Working Capital for Inventory
Increase in projects and spike in seasonal demand need more manpower. This also requires efficient movement of inventory. Companies are investing in digital tools such as inventory management to increase their ROI.
As per a global research study by Capgemini Consulting and GT Nexus, 70% of the manufacturing and retail companies have embraced digitalization of their supply chain, and logistics operations. You can avail working capital loans to support the digitalisation of your inventory management.
Additional Read: How Working Capital Loans Keeping Small Business Alive
Enterprise Resource Planning with Working Capital
Small and medium businesses can enhance their contribution to the GDP by 10% once they are digitalised. The Global ERP Software Market is expected to be USD 41.69 billion by 2020, as per the Allied Market Research by KPMG in India and Google - January 2017.
If you are jumping on the bandwagon of the ERP, flexible working capital loans will prove to be a good companion. ERP helps to integrate various business processes on a single platform. It helps to scale your business to greater heights, by increasing operational efficiency and reducing waste.
Working Capital Utilized for Marketing
Marketing is the key to gain a wider customer base, and to promote your brand awareness. Outdoor marketing, ads in television or newspaper, and online paid campaigns can lock significant amounts of your working capital. Participation in conferences or expos is also important to penetrate the visibility of your company. These costs can easily be offset by a working capital loan.
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