Working capital is a tricky thing to manage and not to mention, boring, too. The definition itself is an equation of business terms current assets minus current liabilities which requires even more definitions. Currents assets are the resources that can be converted into cash within a year, while current liabilities are your company’s debt obligations that need to be repaid in a year. Basically, something that affects all companies, big or small, in any industry in any part of the world.
But small businesses have an especially difficult time bridging the gap in working capital, which then makes it harder to find suitable lenders and investors, and makes it easier to fail.
Managing working capital ensures that an organization is able to manage its day to day operations and also meet maturing short terms debts and future expenses. Therefore, necessary but not easy. Here are some tips on getting a hold of your working capital and maintain smooth operations:
Invoice your Customers on time
Many small businesses with good sales figures still suffer from insufficient cash flow largely due to inefficient invoice management.Whenever you have completed a project or provided a service, start preparing an invoice – this should be your top priority. The sooner you send invoices, the more likely you will be paid early.Many companies have moved on from traditional invoicing to online invoicing; it’s easy to keep things moving even in your hectic schedule. With automation to your advantage, you can start billing your clients, on schedule and set up automated follow-ups on non-payments.
Make it Easy For You to Get Paid
It’s important to be open to various payment methods to ensure getting paid on time by your customers. Accepting credit card payments, wire transfers, payment by check, or, best yet, cash, are all options you should be capable of accepting.Also, make it possible to pay you digitally so they can pay you from the comfort of their desk chair or their smartphone.Remember, the easier it is to pay you, the harder it is for them to make excuses.
Reward Loyal (and quick paying) Customers
Now that you’ve made it easier to pay you, you should consider setting up programs for customers that are not only loyal, but pay you quickly or on-time. One way to do this is to offer discounts or rewards programs to incentive good behavior. Or, as you grow, you can extend credit to your customers (but only the best!). Make sure to consider the disadvantages, but if it ends up being fiscally possible to offer this to your customers, they’ll be willing to spend more money than usual.
Negotiate longer payment terms with your vendors
Slow-paying or non-paying customers often cause disastrous hurdles to growth, yet it’s still necessary to control your business cash flow. One way to do this is to work out longer payment terms with your vendors and suppliers.Just like you can do for your customers, your vendors will want to do with you. If you’ve maintained a loyal business relationship, and you’ve been a dependable payer, your vendors will likely be willing to work out a deal with you. It never hurts to ask – the worst they can say is no, right?