Working Capital Loans

Managing your cash flow involves establishing and documenting everyday expenses and understanding your working capital limits. Daily assessment of your bank accounts, pending payments, outstanding invoices, and overall financial health are the basic steps in ensuring proper working capital management.

Invest your working capital in cash flow opportunities. Improving your inventory turnover ratio will increase your cash flow so take a proactive role by offering customers incentives or discount prices for larger purchases. Customers will purchase more if they can save money and a phone call or promotional effort can make a real difference when attempting to increase your available capital.

Reinforce timely payments for outstanding invoices. Develop a strict policy for timely payments and your customers will understand from the very beginning that you are not a creditor that can be delayed. Often customers will choose to satisfy your invoices and delay payments to other creditors who are not as diligent.

Balance purchasing to ensure good pricing without too much overstock. Working capital loans can be utilized to increase inventory levels and decrease product costs. Determining the maximum efficiency levels involves an in-depth analysis of customer behavior as we as historical sales data. Document inventory levels, consider seasonal or natural fluctuations, and establish the maximum inventory levels with the least amount of overstock. In your analysis consider the points that are not immediately apparent. For instance, although products on the shelf reduce cash flow, you will not take an aggressive approach to selling inventory that you do not have. Sometimes having inventory forces small business owners to be more proactive, and ultimately more productive. However, too much inventory may cause even the most proactive owners to remain with some inventory. Combine data from inventory with the success or failure of proactive approaches and you will surely be able to utilize working capital efficiently.

Distributing working capital effectively is not just about inventory, it also involves managing labor costs and productivity. Business owners often fail to manage their employees correctly. Wasting labor hours is no different than leaving stock on shelves. You must delegate production to employee strengths and hire additional labor only when you require labor to meet production needs. A daily, strategically prepared list of tasks before the day begins will result in maximum output amongst your existing labor team and reduce the need for additional employees.

Working capital plays a critical role in the development and growth of any business. It is important to understand both the funding and management aspects of working capital as your company grows. For further reading on the topic explore the guide to working capital.