By definition, working capital is the company’s current assets minus its current liabilities as listed on the most recent balance sheet. Current assets are cash, accounts receivable, inventory and any short-term company investments. Current liabilities are vendor payables, short-term loans and any other accrued expenses like wages or interest.
Improving Working Capital
Having enough working capital in a business helps provide stability and growth. Here are a number of ways to improve the amount of working capital available.
- Increase profit by reducing expenses or increasing sales. This can help leave more cash in the business for increased current assets. A reduction of expenses can help lessen current liabilities over time.
- Lower debt payments. Consider refinancing any debt to a lower interest rate or over a longer period of time to reduce monthly payments. This can be done when credit cards or bank lines of credits are converted to term loans. Lower interest rates help reduce expenses and increase profit.
- Sell unused long-term assets. If these are not being utilised to generate profits in the business, consider selling or leasing them for cash and to help increase the company’s working capital. For example, an unused piece of equipment or part of an office space can be sold or leased to generate revenue.
- Consider an alternative funding solution. Alternative finance, such as invoice factoring, can release cash trapped in your invoices by providing a percentage of the invoice value almost immediately.
- Negotiate better pricing with suppliers. Review all supplier contracts and negotiate better pricing if possible. A trade finance facility can assist with this.
If you’d like to find out more about alternative business finance facilities, we’d love to be able to help. Why not give Regency a ring today on 0161 280 4010, drop us an email at firstname.lastname@example.org or browse our website for more details on how our facilities work.