According to a report, the Indian Government has expanded Rs.4.5 lakh crore against the Emergency Credit Line Guarantee Scheme. This initiative supports the micro, small and medium enterprises facing liquidity issues.
Since India’s economic condition is still on the recovery path, managing working capital can be challenging for entrepreneurs. Apart from depending on Government schemes, entrepreneurs can implement certain ways that will help in managing their working capital. However, they need to evaluate the financial requirements and identify working capital meaning for their business.
Tips to manage the working capital of a business in 2021
Working capital is a financial metric that evaluates a company’s operating liquidity. Ideally, a business owner uses the funds to make payroll, purchase raw material, buy equipment, maintain inventory and more.
Here are some tips that can help a business owner to manage the operational funds efficiently:
Work with credible customers
Dealing with a customer who lacks credibility is problematic for a business. A client with a poor credit history usually increases the risk of default. There can be instances of non-payment or limited payments. Moreover, in an emergency, these individuals won’t be able to secure funding from lending institutions.
This can disbalance a business operation. Individuals should know how to calculate working capital to evaluate the losses they can suffer in such a situation. Hence, it is essential to work with clients who have a good credit score and credibility. One can also assign a lower credit limit for new customers to check the reliability.
Cut back on expenses
A smooth business operation requires substantial funds. Failing to evaluate the fund requirement can disbalance the working capital. It is essential to prioritise the necessary expenditure and eliminate overspending.
An individual should know how much working capital does a business need and break down the budget accordingly.
Evaluate interest payments
Individuals who avail of loans or debts are bound to a repayment structure. An entrepreneur should calculate the liabilities and interest payments to manage the working capital efficiently.
In this regard, one can approach a lender to levy a lower interest rate. Making early loan repayments can also help save efficiently for business prospects.
Avoid stockpiling Inventory
Managing inventory can again affect the working capital. Every item stocked in the inventory holds significant value. It is essential to order supplies only when needed. This will help in maximizing the cash flow.
For instance, ordering seasonal raw materials will help clear the stock faster. If the items are sold sooner or converted into cash, the profit will increase. Additionally, an individual won’t need to maintain large storage.
However, an entrepreneur must understand the working capital meaning and its purpose for his/her business. This will help them make informed decisions.
Restructure the receivables
To manage the working capital, individuals should maintain an invoicing system. Individuals should maintain an invoicing system. This will detect any discrepancies in the transactions. Issues like unsent invoices, inaccurate data, manual processing, losing invoices, etc., can increase the inefficiencies causing errors and delays.
This can be streamlined by employing the right technology. This will maintain and deliver invoices while tracking the ongoing transactions. Since invoices can be sent faster, receiving payments from the clients will be hassle-free.
Getting the working capital meaning or function for a respective business will help decide the right approach.
In this case, investing in the right software will ensure smooth cash flow.
Securing funds via alternate sources can also be helpful for working capital management. For instance, one can avail of affordable credit forms like business loans.
These loans can require simple eligibility and minimum documentation. Many lending institutions also levy a reasonable interest rate to borrowers with a healthy CIBIL score and remarkable credit history.
Additionally, they can receive personalized services and benefits.
For instance, NBFCs such as Bajaj Finserv aids in a smooth and hassle-free application process. Such offers are levied on financial products, such as business loans, personal loans, etc. Check your pre-approved offer by entering your name and contact information.
Entrepreneurs who understand or get the working capital meaning right can manage funds efficiently. They should opt for a systematic approach to maintain the cash flow without depending on their savings. In this regard, following the suggestions above can simplify the task.