Working capital is the money you get to utilize in your day-to-day business cycle. This working capital is important in every stage involved in running your business, right from purchasing your products, producing the goods, supplying them in different industrial or corporate tributaries, and making sales. 

 

A risk involved with working capital can mean that you could lose out on business growth and success. It sucks out every business opportunity you might be holding. 

 

Are you looking out for ways that could help you increase working capital? Well, here are 5 techniques to do so. 

Improving/Increasing Working Capital 

Before we proceed to the techniques, let us first understand how working capital is calculated. It is to your benefit when you know how working capital is calculated. You can then see if you have enough money to meet business requirements and expenses. 

 

Therefore, the working capital ratio formula is: Current Assets / Current Liabilities.

 

Do you want to make cash flow more predictable? These are some of the fueling factors or techniques to generate working capital.

  • Shortening the Opening Cycles

You must have the idea that an increased cash flow can generate or increase your working capital by now. One way you can do so is to shorten the process where you convert money from production or sales into cash. 

 

For doing so, you can ask the suppliers or clients for deposits and upfront money, reduce your credit terms, and bill any product immediately right after a sale. 

  • Research Credit Worthiness on New Clients

Another step you can include in your business strategy planning is to research your new clients’ creditworthiness before extending any credit benefits. This will further help you know whether your client(/s) is likely to default when it’s time for payment or a timely payer. How can you confirm this? Try checking his information from public records like credit history, bankruptcies, tax liens, payment histories. 

 

That way, you will also gain a clear picture of his industry and local market. For instance, when you have clients from foreign markets, you might consider specific regions’ various economic, political, and business risks. Thus, it’s beneficial you take help from risk experts who can guide you with risk management analysis, thus helping you in international trades. 

 

  • Collecting Timely Invoices

If you are new to business and entering innovation and entrepreneurship, you must keep in mind an accounting department that needs to monitor all past transactions and due accounts constantly. You may send inquiries and notify payers about their due/delayed payments with their data. Also, taking care of your clients is also important. For which, inquiring about them will help you understand and uncover any issues stopping them from completing their payments. 

 

Doing this will, in turn, help you in predictive analysis of similar cases in the future. The snoozing feature of the accounting team will also help speed up the collection process. 

  • Limit Yourself from Unnecessary Expenses

You need to accept and have a transparent ledger to know where and how you spend money. Start doing this, and you will solve half the road to increase working capital (only when working capital is not growing). This starts from examining your budget structure and breaking it down into categorised components. You might need to set rules and restrict yourself from unnecessary expenditures. 

 

Such expenditures include business trips for useless or less important events; even small cash expenditures might add a lot later. 

  • Keep Your Equipment on Lease

I’m sure you must have come across the term ‘lease’ quite a lot many times. Leasing is a process that can save you from making large investments repetitively. However, we understand that technology is advancing every day and to stay on top of the game, investing in modern and upgraded technology is important. No one’s stopping you from doing so. It’s all about changing the process into a smarter way. 

 

Leasing is considered one of the best elements in cash flow management strategy. 

 

Now that’s about leasing equipment from government bodies or other companies. You can even plan on renting/selling your equipment when they are not in use instead of paying its maintenance charge every month. Another way of doing this is if you have extra office space that is not being used, why not rent it to those who need it. 

The Conclusion

I’m sure by following these rules, you can help yourself with better opportunities and options towards increasing your business’s working capital. All you need is mindful expenditures and responsibly maintaining your assets. 

 

Expert Mind Solutions is a great Malaysian consultancy firm offering company consulting services to businesses of all kinds. They have a great team of certified business coaches in Malaysia who, with their immense years of experience, provide the best solutions needed to achieve business growth and success.