One of our most recent blog posts discussed five ways to better manage working capital. It is a topic that should concern every business regardless of size or industry. Working capital is critical to keeping things running while the accounting department handles receivables and payables.
This post is a follow-up to the previous piece. It will discuss five more ways you can better manage your company’s working capital. Remember that working capital is essentially cash on hand. Every company must determine for itself how much cash they need to keep around. Maintain that target level of working capital and things should be just fine.
1. Stay on Top of Expenses
As a factoring company that specializes in invoice finance, we have expenses related to operating a business. Every company does. One of the keys to managing our working capital is to always stay on top of those expenses. You can do the same with your company.
Staying on top of expenses doesn’t mean being so tight with cash that your business suffers. But it does mean not spending foolishly. It means keeping your expenses under control so that you are not depleting working capital by purchasing things you don’t need.
2. Manage Inventory More Effectively
If your business requires you to keep inventory on hand, you can boost your working capital by managing that inventory more effectively. The goal is to avoid stocking too much. Overstock equals overhead, and overhead ties up cash unnecessarily. On the other hand, you will have more cash to work with if you can figure out how to time inventory flow with production cycle.
3. Consider Leasing Over Purchasing
Leasing business equipment is one of the smartest moves companies can make for managing working capital. Thanks to the fast pace at which technology moves, a strategy of buying office equipment can ultimately have you spending too much by replacing equipment that still works but is technologically outdated. Leasing keeps you technologically up to date without requiring sizable capital expenditure every couple of years.
4. Make Debt Management a Priority
Businesses take on debt just like individuals. There is no avoiding it in a modern world that relies so heavily on credit. That said, working capital can be negatively impacted by poorly managed debt. If too much of your monthly revenue is tied up in debt service, you could be hurting your cash position.
Make debt management a priority. Limit the amount of debt your company takes on. When you do have to establish a new line of credit, do your utmost to get the best deal you can. And don’t forget to consider invoice finance over traditional loans when possible. Invoice finance provides the short-term funding you need without having to take on a new debt.
5. Find Ways to Increase Revenue
We close out our list of ways to better manage working capital with a suggestion to find ways to increase revenues. This could mean increasing total sales, but it doesn’t have to. For example, you could increase revenues by finding less expensive ways to provide your products and services.
Increasing sales should not be dismissed, though. The more revenue you can generate through sales, the better off your business will be. Use a combination of strategies to get those revenues up while keeping your expenses static. Your cash position will improve.
Working capital is a business requirement. As you consider the 10 suggestions we’ve offered in these last two posts, remember that invoice finance is an option for raising quick cash. It is as easy as selling unpaid invoices to a factoring company like Thales Financial.