Mistakes to avoid when managing working capital for your business

Steady working capital is a blessing for your business. Its absence will lead to cash shortages for daily expenditure, insufficient funds for tackling urgent needs, and reduced business risk appetite. Managing working capital well will keep your business’ daily operations functioning without a glitch.

Business owners often make mistakes that deplete working capital. Here are common mistakes to avoid when managing your business’ working capital.

Overspending or indulging

Let’s assume you own a leather belt manufacturing company. After looking at current trends, you find out about a machine that adds sheen to leather products. So, you quickly invest in these machines. While it is good to improve your products, acting impulsively will deplete your working capital.

Instead of making purchases based on trends, take some time to study how a new machine, equipment or addition will help you increase revenue. Study the market and invest in such add-ons to retain working capital for other necessary expenses.

Additional read: Should you lease or buy equipment for manufacturing business

Utilising all your working capital

Going by the same example, suppose your manufacturing unit gets an urgent export order. You decide to hire specialised designers and invest in an expensive leather pigment dye to fulfil the order. While you need funds for these needs, you find that paying for them will deplete your working capital completely. If you are in this situation, think about an external source of finance. You can use a business loan to pay for these expenses in affordable EMIs instead of using all your working capital at once. Dip into your working capital for other costs like salaries, rent and electricity. A customised working capital loan from Bajaj Finserv is a good option in this situation, as it gives you funds up to 80 lakh. You can access funds through an easy online application and repay on convenient terms such as a nominal interest rate and a tenor of up to 96 months.

Maintaining excessive inventory

Say you get an order of 10,000 units of leather bags. You buy enough raw material to manufacture 50,000 units. You know that in your line of business, the material parameters vary significantly from one client to another. You can’t use this excess raw material until you receive a similar order. So, for the time being, you have overspent on excess raw material and are also spending to store it in clean surroundings.

Instead, buy inventory in instalments to prevent your working capital from getting blocked. If you get a good deal on a larger inventory, you can take advantage of it using a working capital loan which offers you a Flexi business loan facility. This allows you to make multiple withdrawals from your sanctioned amount and pay interest only on what you utilise. It also allows you to prepay the loan and re-avail the prepaid amount if needed.

Additional Read: Inventory management techniques to save money

Neglecting timely collection of payments

Getting payments on time is vital to keep your business running and fulfill essential costs. Do not allow clients to make late payments. Be thorough with your payment policies and offer your customers easy payment options like net banking, digital wallet payments and credit card payments. The faster you get payments, the faster you can replenish working capital.

Change the way you handle working capital and avoid committing these mistakes to allow your business to grow.