Working capital is an essential component of any business because it provides you with the funding you need for day-to-day operations. Any company which lacks adequate working capital will have difficulty meeting its business responsibilities and maintaining positive cash flow. Here’s how you can optimize working capital.
Accounts Payable
One way you can optimize accounts payable is to contact your suppliers and request more favorable payment terms. You may want to ask for a longer time frame on your payments, you may ask to pay later, you may want to inquire about volume discounts, and you can also ask for a discount in exchange for upfront payments.
Accounts Receivable
Collecting on your accounts receivable is a crucial part of maintaining working capital. You should do everything possible to ensure that revenues continue to roll into your business. You could offer discounts for prompt payments, and you can impose penalties for payments which are late. You can contact customers to make sure they have received invoices, and you can remind them that their payment date is coming up soon.
Inventory
Managing your inventory in an attempt to optimize working capital means that you don’t want to get into the habit of over-stocking or under-stocking. Many companies are able to avoid this by using just-in-time principles, because they’re cost-effective, and they reduce the amount of time that you have inventory sitting around. This also tends to save on inventory space, and avoids the possibility of having to carry excess inventory for long periods of time.
Loans
As soon as a short-term loan becomes mature, you should pay it off promptly. You should also avoid the possibility of purchasing fixed assets by using short-term loans. These cannot be quickly converted back into cash if it should become necessary to pay off the loan quickly, and it could have a hugely negative impact on your working capital.
Does your business need working capital?
If so, we may be able to provide the financial assistance you need. Contact us at Avery James, where our financial experts are ready and waiting to discuss some options for providing you with the working capital that will help you to keep your business running smoothly.
