Working Capital Management Strategies

A strong business has full control over its working capital. As a small business owner, you understand how important capital management is and how these funds can fluctuate, especially during growth periods, when you need cash. Therefore, these are a few management tips you may consider.

Manage Your Creditors

First, always pay your bills on time. You should try to pay them early, especially for creditors that offer discounts for early payments. You can also work with your creditors to renegotiate your payment terms. You may consider reworking your loans to lower payments to increase your available capital.

One way to more effectively manage your creditors is to convert them to electronic payables. You no longer have to wait for payments to get to your creditors. They can access them nearly immediately. You should also access your invoices via email or digital billing. You can even set up automatic payments.

Manage Your Accounts Receivable

Accounts receivable are positive asset entries on your balance sheet, but if they aren’t paid in a reasonable amount of time, they cannot help you finance your company. Therefore, you need to keep a tight leash on your accounts receivables. This includes submitting invoices as quickly as possible. You should also have a follow-up system in place to remind your debtors of their payment responsibilities.

One of the best ways to manage your accounts receivables is to adopt digital or software solutions. You can also offer electronic payment options. Your software can automatically send electronic invoices and reminders, eliminating claims of lost invoices, processing errors, or other payment delays.

Manage Your Inventory

Effective inventory management is vital to healthy working capital. Although inventory is an asset on your balance sheet, if it isn’t moving, you have cash tied up in inventory, preventing you from using the cash for other projects or income-producing products.

You shouldn’t have thousands of dollars of inventory sitting on shelves for months at a time. You may feel tempted to stockpile inventory, especially if you get a good price on it, but this is a mistake, especially for slow-moving products or materials. Instead, reduce the amount of inventory that doesn’t move quickly.

Consider adopting a lean inventory system, where you only purchase the materials you need to produce the products your customers need in the short term or base your inventory buys on your existing orders. Not only will this strategy reduce the amount of money you have tied up in inventory, but it will increase your inventory turnover.

These strategies can help you increase your working capital, encouraging growth and project exploration. Consider these tips as you learn better capital management.