Working capital indicates a company’s operational efficiency and financial stability. Positive capital helps a company meet its short-term commitments, fund growth, and improve creditworthiness.
Effective working capital management is crucial to an organisation’s success. The uninitiated, unaware of working capital management, must understand that the term refers to managing the current assets and liabilities efficiently while encountering challenges.
Here are a few practical strategies to effectively manage an enterprise’s working capital:
Efficient Inventory Management and Procurement
Business Inventory is a critical component of effective working capital management. SME owners often need to pay more attention to efficient inventory management. While an inventory shortage might lead to lost orders and opportunities, hoarding excessive inventory blocks the capital, making monitoring the inventory closely essential. Effective inventory management also includes reducing slow-moving merchandise and increasing its turnover cycle.
Business owners must analyse the past performance of their inventory, along with metrics, to implement an effective management process. Utilising a digitised platform to identify trends and forecast demands can help make more precise decisions. A supply chain finance in india provides the required funds to purchase or invest in an efficient inventory management system.
Well-Organised Receivables Management
Another strategy to optimise cash flow and improve working capital management is to shorten the sales to cash cycle. Another major challenge that many enterprises need is bad debts. To reduce them, company owners should check the debtor’s history, performance, and reputation to ensure timely payments. Reassessing credit terms and contracts will ensure the company does not give debtors an unnecessary long window for settling dues. Automated systems with timely reminders help reduce bad debts significantly.
Automate GST and Tax Inputs
A business’s working capital can get blocked due to tight ITC (Input Tax Credit) restrictions. The Indian government has recently changed the GST laws to ensure ITC claims under the GSTR-2B statement. It pressurises the SME owners to reconcile their ITC frequently and carefully to communicate missing information to the suppliers. Tight restrictions affect working capital management, and enterprises can automate their ITC claims and GST returns filing process. Automation guarantees accuracy, as low accuracy impacts efficient working capital management.
Streamline Vendor Payments and Communication
Maintaining good vendor relationships always results in better product quality, higher discounts, and favourable credit terms. Simultaneously, every business owner must develop payment discipline and ensure timely supplier payments.
Automating vendor management streamlines invoice processing, onboarding, communication, coordination and expense management processes. Not uploading the invoices on time hits a company’s working capital. It is important to make timely supplier payments. A business capital loan can help do this and manage working capital efficiently.
Detect Anomalies Using Real-Time Data Analytics
Business owners can make viable decisions with relevant information in hand. Instead of depending on old-age month and year-end reporting, business leaders need reports whenever they want. Real-time data analytics reporting provides the financial visibility to monitor and implement an efficient working capital management strategy.
What is Working Capital Management?
It is a way to improve how a business generates more cash, increases operational efficiency, and raises profitability for potential business growth. Apply for a business capital loan to cover the required expenses for implementing the above strategies.