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How engineering firms can optimise their working capital?

  • Highlights

  • Check payment collection and spending

  • Cash reserves and loan for engineers

  • Review processes for a lean business

  • Sell unused and obsolete assets

As an owner of an engineering firm, you might find that your present set-up is blocking your working capital. Streamlining the way you handle your finances can help you make your working capital go the extra mile.

Here are ways in which you can optimise the working capital for your firm.

Streamline earnings and spending

Accounts payable makes up for the biggest drain in your working capital. But, you can’t avoid paying your suppliers and vendors. Instead, you can negotiate better payment terms in line with when you are likely to receive payments. Also, put into place a proper payment collection process to ensure that it is done efficiently. You can also consider taking an advance from each client before starting the work to improve cash flow. Also, monitor your spending and see where you can economise.

For example, if you buy a machinery maintenance package when buying machinery, you will be able to save a significant amount of money.

Anticipate your cash needs

Despite your best efforts, there can arise situations that impact your company’s productivity. For example, an electrical fire can stall production for a few days. In such a scenario, you will find that your budgeted working capital will deplete quickly. Maintaining a cash reserve will help you give your working capital a boost in such situations. Another alternative is to rely on an external source of credit to meet your needs as soon as you anticipate them. You can consider taking an affordable loan, such as a business loan for engineers. Pick one that offers quick disbursal and has a low rate of interest. This will help you boost your working capital in an efficient manner.

However, for times when you feel that your engineering firm’s cash needs cannot be accurately anticipated and there are many uncertainties around your receivables and payments, then you can avail an Engineer Loan in a flexi format. With the borrow as you need, prepay when you can facility you can make drawdown on your engineer loan as and when a business need arises and prepay when you receive payments and have surplus cash with you. Such a facility can potentially lower your EMIs by up to 45% as here you pay interest only on the withdrawn amount and not on the full loan that is sanctioned. You can also choose to pay EMIs only constituting the interest component and pay the principal at the end of the loan repayment time.

Top Business Opportunities for Mechanical Engineers

Streamline processes

It is important that you arrive at the easiest and best way of carrying out production. This will ensure that you aren’t spending time or money on unnecessary steps and processes and in turn, losing out on funds that can be diverted towards working capital. Also, in certain cases, manual processes are error-prone and may come in the way of working capital. Increase you firm’s dependency on technology. This will help you increase speed of production and lower overhead costs.

Discard obsolete and unused assets

If you have assets that are unused or obsolete, don’t hold on to them. Doing this will only block your capital. Instead, sell these assets to get funds that you can divert towards the working capital of your business. Doing this on a periodic basis will help you make the best use of your resources.
With these tips, you will be able to optimise the working capital of your firm and give it a boost as and when the need arises.

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