4 Tips for Effectively Managing Working Capital

Managing Working Capital

Managing working capital can have a major influence on the smooth functioning of a business. Effective working capital management is considered to be one of the most important steps towards building a successful business. This helps in boosting its performance without having to worry about running out of cash.

For those who are running businesses and are looking to effectively manage their working capital, go through the following tips that could help!

1. Make use of data analytics for identifying anomalies

An entrepreneur can make a financially steady decision only once they have all the relevant information with them. The days of checking reports at the end of every month and year are long gone. Today, business leaders prefer having access to real-time reports and metrics. This type of data analytics and reporting can help in implementing an effective strategy to manage the working capital of a business. This can help in not just monitoring the business performance but also understand areas in which it can increase profitability and reduce discrepancies.

2. Automate vendor payments for smooth transactions

Automating vendor payments can help in making processes such as invoice processing, onboarding, managing payments, and communication much more efficient. An automated vendor management process will also help avoid the dependency on vendors to manually upload invoices on time which, if delayed, could put a halt on a business wanting to claim ITC (Input Tax Credit). Not being able to claim ITC harms the working capital, which is why automating the vendor management process is so important.

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3. Be prepared with a clear cash flow forecast

It is very important to be aware of the phases in which sales are at their peak, the time it takes for the business to make up for their investments in buying goods, extra funds that are needed during festivals where sales might hike, and even the phases in which the business needs extra cash. Knowing these details will help the business in being prepared with working capital solutions for effectively managing its operations.

4. Strike a balance between the flow of receivables and business expansion

This is a factor that is quite often overlooked by businesses. Customers are bound to make use of a credit facility that is provided by a business. It is essential for a business to strike a balance between maintaining the flow of receivables and thinking of expansion. In order to do this, it is advisable for a business to set certain criteria in place or offer a credit facility to only those existing customers that have good track records of previous payments.  When it comes to the accounts that are long overdue, instead of writing them off completely, it is better to offer discounts on their pending payments.

A business can greatly benefit from effectively managing its inventory, cash, and payments. When in need of working capital finance, businesses can always go ahead and reach out to a lender and apply for a working capital loan.

Also Read: How will You Finance Your Business When Your Credit Score is Poor?

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