5 levers to keep your working capital cycle on track

Keeping your working capital cycle on track
Keeping your working capital cycle on track

According to the accountants, PWC, in their 2015 Annual Global Working Capital Survey “Bridging the Gap”, the cash opportunity from improving working capital to UK industrial manufacturers could be as high as £9bn!

Working capital is the investment required to finance the ongoing operations of the business. It is defined as Current Assets (Cash + Debtors + Work in progress + Stock) less Current Liabilities (Creditors + Short term debt + Expenses due within one year). A healthy business should have positive working capital and a working capital ratio (Current Assets/Current Liabilities) between 1.2 and 2.0, although this may vary from sector to sector.

Here are 5 things you should be doing to keep the wheels on:

1. Know your costs and purchase wisely

All business expenses involve a purchase transaction, at least initially. It is important to buy wisely and make the most of modern purchasing techniques to ensure that the business is receiving value for money. This means buying at the right price and quality level and on the right terms. Thoughtful business spending helps you save small amounts at every transaction and this quickly adds up.

2. Operate with efficient processes

The working capital cycle can be reduced in most businesses by removing those non-value added activities and shortening the time it takes to process information and orders through the business. The quicker the business can deliver high quality services and products to the customer, the quicker it can invoice and be paid.

3. Invoice promptly and accurately

The working capital cycle of a business is the time it takes from receiving the order to depositing the payment for that order into the bank. For some consumer-facing businesses this is immediate or quite short, for most businesses working on commercial terms with customers they may have to wait 30 to 120 days from the date of the invoice. So agree payment terms you can handle with your customer and ensure invoices are raised promptly and accurately once the product or service is delivered.

4. Grow within your means

Most company management teams desire to grow their business and each company has a viable rate of growth that can be supported by internally generated cash flow. More accelerated growth, if achievable, could be funded through access to alternative funding providers, such as YesGrowth. Either way, growth needs to be carefully managed from a cash perspective as even successful companies can run out of cash.

5. Know what funding is available

There was a time when the only source of funding available to a small and medium sized business was the local bank who would provide overdraft and various types of lending facilities. The world has changed considerably since 2008-9 and a new set of alternative finance providers has emerged offering flexible, rapid and innovative financing approaches to support UK business.

Do you need a loan to fund your growth? www.YesGrowth.com safe, reliable and secure business loans.

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