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Expert Answers to Biz Questions
Listen in! Pick up some expert advice to a reader's question that we selected from CyberSchmooz.
How Can Working Capital Save Your Business?
Despite the size of your company, there is always room for improvement. If you can’t manage your working capital properly, your business will fall sooner or later. To keep that from happening, we are giving you a few tips.
Procurement and Inventory
Inventory management is very important to benefit from your working capital. Extra stock can exhaust your savings, but it’s better than having nothing, losing sales, and damaging your customer relationship. When you are looking for inventory, you need to be careful about your investment, and how you will sell it. You need an optimum stock level; it improves communication between departments and forecasts demands which helps to avoid unnecessary stocks.
This adds more expenses like insurance and physical storage, plus you might risk your investment if the stock is time sensitive.
Pay on Time
If you want to remain successful, you have to pay your vendors on time. Yes, enforcing payment discipline is crucial because the biggest improvement comes from better payable performance, and reduces outstanding bills. If you pay on time, you will improve your relationship with your supplier, and get a better deal, discount, and payment terms. This will help you to maintain a working capital. If you keep your suppliers happy, they can save your skin in the long run. It helps you get discounts when you are buying in bulk, recurring orders, and improving your credit score.
Improve Your Receiving Process
To cut your receiving time, you have to improve your collection system. For starters, you have to send invoices as soon as you can. You need to rework your invoice processing to speed up billing and collection. This shortens the cash conversion cycle, and it makes sure the invoices are accurate before they are sent to debtors. It’s important you check your invoices to avoid delays in payment. You have to optimize your debtor ledger to improve your debtor collection dates and send payment reminders to your clients.
Improve Debt Management
Optimize your working capital to make sure the payments are made on time. You have to reassess your contracts and credit terms with your debtors to make sure you don’t provide the debtors too big window to pay for services and products. This will have a negative impact on your company’s finances. Therefore you have to review your credit terms to make sure what you offer to the debtors doesn’t leave you bankrupt. To control your debt, you have to opt for a rigorous credit check and make sure you take effective credit control to deal with customers who make late payments.
Make Informed Decisions
Working Capital is interest-free and had no conditions. This makes it a cheap and fast to source finances. You have no instant need of money if you prioritize your working and come with a strategic investment decision. This will help to improve your work performance and efficiency. You have to map out a plan that will get you out of the trouble, and help keep things the saw way.
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