6 Tips to Effectively Manage Working Capital

Last Updated Jun 21, 2020 | Published on Jun 15, 2019 | Small Business

Is there anything more important than working capital? Working capital is used to purchase raw materials, make payroll, buy equipment, purchase inventory, and pay for daily business expenses. Without it, your business wouldn’t survive. For this reason, businesses are constantly looking for ways to effectively manage their working capital. Some take out Miami business loans, while others limit their expenses.

Whatever your strategies may be, here are six tips on how you can effectively manage your working capital:

1. Conduct Credit Checks on Customers

If your customers have bad credit scores, it can negatively impact your accounts receivable. Make sure your customers are able to pay you back. You might want to run a credit check on clients before transacting with them. You could also assign a lower credit limit for new customers and let them prove themselves as being creditworthy.

2. Cut Back on Expenses

When it comes to business expenses, transparency and clarity are important. Evaluate and prioritize your expenses and decide on what you should cut back on. Break your budget down to make sure you’re not overspending on a certain aspect of your business.

3. Increase in Revenue

Increasing your sales revenue is one of the most obvious ways if you’re looking to increase your working capital. More sales equal a revenue increase. However, it’s easier said than done. One way to increase your revenue is to expand your sales force and attempt new marketing channels. However, there may be times when profits from revenue come in later than expected. If this is usually the case, make sure to focus on minimizing your expenses as well as costs.

4. Evaluate Interest Payments

If you have any business loans or other forms of debt, be sure to check up on your interest payments. You might want to ask your lenders if you are eligible for lower interest rates. Early loan repayments can also help lower the total cost of a loan.

5. Don’t Stockpile Inventory

Think of your inventory as a stack of a hundred dollar bills. Each piece of inventory in your warehouse is comparable to a pile of money sitting on the shelf without much use. Decreased liquidity can cause your business to be less competitive. Make sure your supplies and products arrive when you need them to maximize your cash flow. If your inventory is quickly converted into cash, you’ll free up your cash flow. Furthermore, you won’t need as large of space to store your inventory.

6. Look for Other Ways to Improve Cash Flow

Keep in mind that you can improve your working capital by earning more, selling business assets for additional cash, issuing company stock, or taking on more debt. However, best to attempt steps one to five before considering these strategies.

7. Streamline the Receivables Process

To properly manage your working capital, you need to ensure that you have an organized collections system. It’s important to evaluate your invoicing process to spot inefficiencies that may be causing errors and delays. Some of these issues could be lost invoices, unsent invoices, manual processing, or having too many invoices to handle.

You can streamline your receivables process and reduce errors by using the right technology to automatically deliver invoices to hasten the billing and collection. In this way, you’ll be able to receive payment much faster than by using manual processing.

It’s also important to double-check invoices to prevent delays caused by errors. The right software can help ensure that you are on top of your finances.

8. Apply for Asset-Based Financing

Asset-based financing allows you to borrow against the value of your assets. This allows you to borrow money to increase your working capital based on your current assets, such as accounts receivables, commercial real estate, and more. This type of financing provides long-term solutions with competitive interest rates. If you’re a strong borrower, it’s likely that you will receive the most favorable rates and most appropriate repayment terms depending on your needs and preferences.

Miami Business Loans: Small Business Loans for You

It’s tough to manage working capital if you don’t have sufficient access to it. Applying for Miami business loans can help business owners manage their finances. Maintaining a steady flow of cash is crucial if you want to stay in business. If you need additional working capital, applying for Miami business loans are a great way to bridge cash flow gaps. If you want to know more about small business loans, get in touch with a trusted financial expert near you. They can help you find the best type of Miami business loans suitable for your business.

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