Techniques to manage your working capital

This post answers the following questions

1) How to manage your working capital?
2) Why should you stay on top of your receivables?
3) Why is it important to keep track of your inventory?
4) What will happen if you don’t have mutually beneficial relationship with your suppliers?
5) Who are able to do most of the record keeping for you?

If your business is struggling to stay on top of its receivables or if you always seem to be falling behind on paying vendors, loans or debts to various creditors, then it is probably time to create a better technique for managing your working capital. How you manage your working capital as a small business owner will directly affect your operational cash flow, as well as your bottom line. If you don’t have an effective system in place for managing your accounts receivable, accounts payable, and inventory, you will run into cash flow problems and end up accumulating more debt.

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Here are some useful techniques for managing your working capital:

1. Stay on top of your receivables. If you are too flexible with your payment terms for invoices, you will find it incredibly difficult to sustain a healthy cash flow over the long run. Make sure that you always perform a credit check before offering customers any type of credit, and negotiate reasonable terms of payment so that invoices get paid within a reasonable amount of time. It also helps to send out reminders, so businesses feel obligated to pay sooner.

2. Expand your customer base. You should not focus all of your efforts on nourishing a relationship with only one large customer or a few medium sized customers. Make an effort to land new business, so you can become reliant on frequent purchases from a large and diverse customer base instead of a lump sum from one client. This is a great way to grow your business while also helping to decrease your cash flow and credit problems.

3. Keep track of inventory. It is important that you have a clear idea of your inventory at any given time. Finding yourself in a situation with an inventory shortage or having too much inventory can affect your business operations or even hurt your profits. Make sure you’re performing thorough inventory checks regularly and that there is a system in place to ensure that your inventory keeps moving.

4. Pay your suppliers on time. If you don’t have mutually beneficial relationship with your suppliers, they may drop you as a customer. If they end up stopping delivery of inventory and essential supplies that you need to keep business operations running smoothly, it could cost you revenue while you look for a new supplier. Paying your suppliers needs to be a priority, which is why it is essential that you have a reliable system for keeping track of your invoices.

5. Take advantage of discounts based on volume. If you regularly purchase certain items in bulk or make large purchases from a single supplier, ask if they offer quantity discounts. You can also negotiate terms so that you can get a discount any time that you make a payment ahead of schedule. Depending on the nature of your business, you can also offer these types of discounts to your clients, which may help you to get paid faster, so you have more working capital sooner.

These are five techniques that will help you effectively manage your accounts receivable, accounts payable, and inventory in order to improve your company’s working cash flow. There are also online businesses that are able to do most of the record keeping for you, so you can just review your statements and make your assessments from the updated information they provide. The important thing is that you are reviewing your cash flow regularly, so that you know can handle any forecasted growth.

The article is posted by Gerwyn Wallto. You can find other related articles in Small Business and Finances Blog.

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