Every company requires sufficient working capital to meet its current needs and ensure business growth. If you have too little, you risk bankruptcy, while if you hold onto too much, you may be diminishing shareholder value and profits. Here are some steps to take to increase working capital when your company is falling short.
Streamline Collection of Outstanding Invoices
Having too many late-paying clients can severely impact company cash flow and available working capital. After delivery of products or performance of services, send out invoices immediately. Offer incentives such as discounts for prompt payment of accounts receivables, and impose penalties for late payment. Incentivize your collections personnel to diligently follow up on errant customers. Analyze the credit profiles of your customers, and require stricter terms for those that habitually pay late.
Increase cash flow by reducing expenses wherever you can. Negotiate better prices with vendors for needs such as equipment, office supplies, and technology. If your vendors are not willing to cut your costs, shop around, compare prices, and consider switching to other suppliers.
Negotiate Terms of Accounts Payable
Negotiate the terms of your accounts payable to be as favorable to your company cash flow as possible. Although you want to collect on accounts receivables promptly, when it comes to accounts payable, the best strategy is to keep your funds as working capital as long as you can. If payment terms do not suit you, insist on new ones or move on to other vendors and distributors.
Analyze Tax Situation
Overpayment of taxes could be negatively impacting the availability of working capital for your company. Keep up with the latest local, state, and federal tax codes, and take advantage of all deductions and other incentives to which your company is entitled.
For more advice on improving cash flow and increasing working capital, get in touch with Capital Connex.