If you read my previous article on working capital, then you will see I talked about the tips to build strong working capital for start-ups. And today’s article is little different as I’m going to talk about the tips to improve (the already existing) working capital.
So, without beating around the bush, let’s read the gist of this article below.
Raw materials, employee salary, payments of wages, and overheads to name a few are example of working capital. These are crucial to check the day-to-day operation of business. This is the reason companies look for ways to improve their working capital. If you’re also looking for ways then this article is your easy way out. Here you’ll look at the rundown of effective tips helping you improve working capital of your business.
Let’s get started now.
Top effective tips to improve working capital of your business
At the end of this article, I’m sure you’ll find these tips worth following. Now have a look:
➠ Manage business inventory
The first tip in the list to improve your working capital is to manage your stock inventory. How do you manage it? Don’t overstock it and make sure that finished goods are sold as soon as possible and not just kept in warehouse idly. Remove the products and services that are no more in use or performing. Not only will it improve your working capital, but overall accounting firm performance.
➠ Offer incentives to customers
Why and when should you incentivize your customers? And how it helps in improving working capital? This is your question. When you receive payments from customers in advance or on time, you can incentivize to these customers. Never try to transact or do business with customers who have a history of defaulting and delay in payments. You just can’t trust these customers.
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➠ Go for vendor who offer discounts
Getting discounts from any business is a good way to save money and finance. So, if you also want to improve the working capital of your business, make sure to maintain a good and healthy relationship with vendors. When this relationship will work? Suppose, in the future if your company faces money or cash crunch, this relationship will go in a long in receiving some mercy or leniency from them.
➠ Analyse interest payments
Have you taken loan from bank? If yes, then examine the loan on the interest you have to pay. Also, examine other forms of fixed assets you’ve taken. What you need to do is check whether you’re eligible for a modification in interest rates and thereby pay a lower fixed amount every month. If you clear you loan in the initial stages this will help you reduce the cost of paying future installments. This is actually a part of your savings that you can add to the working capital.
➠ Keep an eye on your expenses
Your working capital easily gets affected when you have more expenses than savings. Here you have to pay attention to cash flow and make a comparison with your expenses like bills and equipment purchase. There is no doubt that heavy equipment purchase cause a major strain in business cash flow. Therefore, you have to find out ways to reduce your cost expenses.
➠ Impose penalty for late payments
The way you offer incentive to customers for early payments same way you can establish penalty for late payments. This is actually a move that sends out a message to your customers that they should meet their payments obligation on time. This will help you get invoices paid faster. No doubt, penalties give a birth to fear in customers to pay on time and save themselves from penalty.
Let me also tell you that imposition of penalty may harm your relationships with customers, so take this step politely.
Guys, these are not the limited ways to improve working capital of your business, you can find many others. You can also improve it by earning higher profits, selling assets for cash, issuing company stock, taking on more debt, and much more. Just make sure to keep your business finance and accounting books healthy, it will help you improve overall working capital of your business.
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