Determining business requirements is the very first step in deciding on the best way to fund working capital. Whether your business is starting in its first few years, or whether it’s time to expand may require considering different working capital financing solutions
Manage debtors effectively
The best way to ensure you’ve working capital is to make sure payments are flowing on time. Re-assessing your contracts & credit terms with debtors may be necessary to make sure you dont have too much of bad debt on the balance sheet. A big window to pay for goods & services may negatively impact your own company’s cash flow. CFO’s should evaluate credit terms with company management to ensure that the level of credit being offered to the debtors is appropriate for your company’s cash flow needs.
Make informed financing decisions
Working capital is interest-free with no conditions, making it the cheapest and fastest cash source for a company.
Prioritizing working capital allows the company to make a strategic investment decision, which drives operational performance and efficiencies. Conversely, not having enough operating liquidity because assets are tied up in inventory/unpaid invoices can significantly affect cash flow.
Working capital management can be done effectively by using key performance indicators (KPIs) at the operational level. As you may map out receivables and payables over time, inventory metrics, and KPIs, i.e., Key Parameter Indicators such as days payables outstanding, sales outstanding & days inventory outstanding. Continuous monitoring of the metrics is crucial part to maintaining a sound working capital management strategy.