Get The Latest UpdatesSUBSCRIBE
Why working capital management is important
Tips to help you manage working capital
Balancing short and long-term financing needs
How Working Capital Loans can help
As you are running a business, you already have hands-on experience in working capital management, even if you call it by any other name. You manage the cash coming in and going out. You check which product is selling well and decide to stock them up or vice versa. You may even provide the customers an option to buy now and pay later, and follow up with them to make sure they pay. Then surely you have found that managing these tasks is the most important factors for success.
Working capital is defined as the difference between current assets and current liabilities. It is how much you have minus how much you owe. It is vital for your business. It will determine your profitability and survival. Lenders tend to check it before signing off a loan to you. Ineffective working capital management can cost you better interest rates. So, how to improve this all-important factor? There are various financial products, like Bajaj Finserv Flexi Business Loans, to help you improve the condition of your working capital.
Additional Read : How to use working capital loans to strengthen your business
Here are some of tips you may find useful in the management of the working capital for your business:
You need cash to run your business, so you need to plan. When you invest cash to buy some goods, how long does it take to sell them and get the cash back? Your business may be undergoing seasonal effects. Most of the annual sales may take place in a mere couple of months. Is it during Christmas or Diwali or Pongal? How much extra cash do you need at that time? Do the customers pay on time? Do they buy more on credit or do they prefer cash? When do you need the cash, and how can you get it?
Note down the answers to these questions so that you can plan for all the possibilities. If you find any shortfall, you can be prepared well in advance.
Sometimes, even after excellent planning, some unexpected things happen. The prices may go up or your best customer can ask for more time to make the payment. In such cases, it is better to have an alternative ready in advance to manage the cash shortfall until payments get cleared.
We, at Bajaj Finserv, provide speedy disbursal of loans for such emergency needs, at a very competitive interest rate.
Additional Read : What Information Do You Need to Apply for a Business Loan
This is another important factor which often gets overlooked in working capital management. When you provide a credit facility, customers generally make use of it. Your business grows, but your receivables grow too. Will all the customers pay you for the goods or services they have taken? Even if they do, will they pay back in time? How much bad debt you can absorb if some of them fail to make payments?
You need to have a find balance between growing your business and maintaining the flow of receivables. Set some criteria. You can choose to provide the credit facility only for existing customers with good track records. Give them some incentives to pay early. You may even decide to provide some discounts for long overdue accounts instead of simply writing them off.
Sales discounts can be useful when it comes to reducing the amount of money you owe to your creditors. The sales discount on your invoice may be written as 3/15 net 50 terms. This means if you make payment within 15 days, you will get a 3% discount on the invoice amount. If not, you need to make the full payment in 50 days. In this case, paying early is beneficiary for you. You will save more by availing the discount.
Look out for creditors who are giving you a discount or ask your existing creditors for such a discount. The amount saved will help
in managing your working capital. The more tightly you run your ship, the more profit you can earn. Find out how the money rollover can be made faster. Check for leakages. Once you find them, try to resolve the issues.
Oh! Please let us know why?
Please let us know why?
Please let us know why?
Great! Please let us know why?
Awesome! Please let us know why?