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Mistakes to avoid when managing working capital for your business

  • Highlights

  • Don’t be impulsive about new business expenditure

  • Maintain a payment ledger and collect dues on time

  • Utilise a Working Capital Loan to fulfil big costs

  • Don’t overinvest in inventory or deplete all your capital

A steady working capital is a blessing for your business. An absence of the same will lead to cash shortages for daily expenditure, insufficient funds for tackling urgent needs, and reduce the risk appetite of your business. Thus, managing working capital well will keep your business’ daily operations functioning without a glitch. Business owners often make mistakes that deplete working capital. So, here are common mistakes you can avoid when managing your business’ working capital.

Don’t overspend or indulge

Let’s assume you own a leather belt manufacturing company. After looking at current trends, you find out about a machine that adds sheen on leather products. So, you quickly invest in these machines. While it is a good idea to improve your products, acting rashly 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 revenues. Study the market and only then invest in such add-ons. Not being impulsive will help you retain working capital for other necessary expenses.

Additional Read: Should You Lease Or Buy Equipment For Manufacturing Business

Don’t utilise all your working capital

Going by the same example, suppose your manufacturing unit is faced with an urgent export order. To fulfil the order, you decide to hire specialised designers and invest in an expensive leather pigment dye too. While you need funds for these needs, you find that paying for them will completely deplete your working capital. If you are faced with this situation, think about an external source of finance. For example, you can use a business loan to pay for these expenses. This allows you to repay the money in affordable EMIs instead of using all your working capital in a lump sum. You can use your existing 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 Rs.20 lakh. You can get access to funds through easyonline application and repay the same on convenient terms such as a nominal interest and a tenor of up to 60 months.

Increase Your Working Capital

The life cycle of working capital

Working capital is the life blood of any small or medium sized enterprise. Without adequate funds to keep the business’s day to day operations running, the business can falter in its commitments to clients. Therefore, knowing what a working capital cycle is, and how to make the most of it, is essential for any business owner. Here, we tell you how to determine the working capital cycle of your business, and how you can speed it up.

The life cycle of working capital

Don't maintain excessive inventory

Say, you get an order of 10,000 units of leather bags. To fulfil it, you buy raw materials suited to manufacture 50,000 units. You know that in your line of business the material parameters greatly vary from one client to the other. And you can’t possibly use this excess raw material until you receive a similar order. So, for the time being,you have overspent your capital on excess purchase and are also spending to maintain the inventory in clean surroundings.

Rather than this, buy inventory in instalments to keep 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 your prepay and re-avail the prepaid amount if needed.

Additional Read: Inventory Management Techniques to Save Money

Don’t neglect timely collection of payments

Payments are vital to keep your business running and fulfill essential costs. So, do not allow clients to make late payments. Be very thorough with your payment policies and offer easy payment options like net banking, digital wallet payments and credit card machines to your customers. The faster you get payments, the faster you can replenish working capital.

Reshuffle the way you handle working capital and stay away from committing these mistakes to allow your business to grow.

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