DEALING WITH WORKING CAPITAL PROBLEMS
- David Manklow
- Nov 19, 2021
- 3 min read
Updated: Mar 22, 2022
As many businesses fail due to a lack of cash, effective cash management is crucial. This entails having a full understanding of your business' working capital needs.
Possible delays to the supply chain, and general uncertainty around the economy, will likely have an impact on your cash position, whether you import goods or not. Monitoring your cash position and looking forward will help you ascertain whether you need additional support, either with managing your cash or reviewing your needs for working capital.
WHAT IS WORKING CAPITAL?
In simple terms, working capital is the money you have available to fund your business’ day-to-day operations.
In practice, a lot of your money will be tied up with customers, owed to suppliers and HMRC, or used for stock or works in progress. As with many businesses, the ebbs and flows of your working capital will follow a regular cycle, but it may also be highly seasonal.
WHY IS IT SO IMPORTANT?
More effective management of working capital can help make your business more resilient – for instance, when faced with tougher trading conditions. It can also reduce your need for growth finance.
Working capital is vital because your business needs ready cash to meet its day-to-day needs, such as paying suppliers or salaries.
To make sure you have enough working capital, you must:
calculate your current levels
project your future needs
consider ways to ensure you always have the cash you need
COMMON WORKING CAPITAL ISSUES:
You might need more working capital for a variety of reasons, including the following:
To grow your business, as you'll incur costs before you receive cash for your products or services
Lack of visibility on cash and working capital performance across the organisation
Lack of cash awareness across departments and geographies
High levels of overdue receivables and bad debt write-offs
Poor controls in relation to setting and managing payment terms of customers and suppliers
Lack of co-ordination between sales and planning, coupled with a lack of visibility on stocks
WAYS TO IMPROVE WORKING CAPITAL EFFICIENCY:
Businesses can do these three key points to give themselves as much working capital as possible:
Review lead times, safety and cycle stock to proactively manage inventory. This means engaging with your suppliers early and evaluating the needs for physical space, including warehousing, ahead of key trading times.
Engage suppliers, customers and other key organisations to share assumptions, and re-evaluate who will bear the impact of working capital changes. Evaluate contracts and, if you need to renegotiate them, bring them into line to reflect the changed commercial realities.
Model the potential changes in working capital requirements in a post-Brexit scenario, including the impact of trade barriers and potential currency fluctuations, to ensure headroom in financing is available.
FUNDING OPTIONS TO BOOST YOUR WORKING CAPITAL:
BUSINESS LOANS:
Nobody knows your business better than you. Business loans allow you the flexibility to use the funding as and where the business requires. Often used for growth, loans can also be beneficial for consolidation or special projects
ASSET FINANCE:
Asset finance can relate to a range of 'soft' and 'hard' assets. Equipment, machinery and vehicles can all be purchased for your business using this funding option. You can also release equity from an existing asset you already own.
COMMERICIAL MORTGAGES:
If you're looking to expand your business, or the cost of renting has become too pricey, purchasing a property might be a viable and smart long term solution. As a broker, a complex product like this is where we really shine.
INVOICE FINANCE:
From Factoring to Discounting, Invoice Finance can be one of the best ways to ease cash flow problems or simply just speed up the payment process. Credit control services can also be included as part of the finance product.
ASSET REFINANCE:
Unlock valuable working capital against assets that your business owns e.g. equipment and vehicles. One advantage is that you don't have to own the assets outright, the lender will base their decision on the equity you have currently.
BUSINESS VEHICLE FINANCE:
Whether it's a commercial van or a business car, Approved has Lease or Hire Purchase options to suit your needs. Depending on your requirements, you can choose to include servicing and maintenance into your repayments.
If you would like to know more information about the products we provide then please click the link below:
or alternatively, download our your own personal Business Finance Guide via https://www.approvedbusinessfinance.co.uk/your-business-finance-guide
