Strategies for protecting your working capital

Your working capital refers to the money you need to meet your day-to-day financial obligations– the cash you need to operate. The goal is to maintain or generate more cash to avoid deficits and make sure that you have the capacity to run your business and invest in growth opportunities.

Simply put, good working capital management is the mark of a healthy and sustainable business. With that said, let’s explore the different ways to improve your working capital.

How to improve working capital

1. Cut unnecessary expenses

One of the best ways to manage working capital and improve profitability is cost reduction. Explore savings opportunities that can help you free up more cash and protect your working capital. If you look at your company expenses closely, you can definitely find inefficiencies that you can always eliminate or improve.

2. Reduce bad debt

Bad debt is also known as uncollectible debt, accounts receivables that can no longer be paid because of debtor’s bankruptcy, inability to find the debtor, or fraud on the debtor’s part. A lot of bad debt can harm your working capital, so it’s crucial to pay attention to your credit management processes and find ways to collect payments faster and more effectively. You can also consider debtor financing to borrow cash against your unpaid invoices.

3. Choose vendors who offer good deals and discounts

Some vendors offer better deals and discounts, and it’s all about doing your due diligence in finding the right suppliers that offer more savings opportunities. Once you find the right suppliers, earn their trust and establish a good working relationship with them. Maximise early payments discounts and up your negotiation skills to strike more favourable terms.

4. Reduce inventory costs

Proper inventory management can also help you unlock operating cash. The last thing that you want is sitting with excess inventory that you don’t really need or can’t sell. To avoid overstocking, you need to find a way to better forecast demand and improve inventory visibility. The goal is to not have a bulk of your capital tied up in inventory to enable better financial flexibility and healthier cash flow.

5. Leverage technology and automation

There’s a plethora of software apps, cloud-based solutions, and AI tools that can help you automate and streamline your business workflows– from accounting to invoicing to inventory management. These efficient solutions can help you save money, time, and resources all while reducing the risk of human errors. Not to mention these tools can also help effectively enable transparency and data-driven decisions.

6. Refinance your fixed assets

Another way to generate working capital is refinancing your fixed assets such as your equipment. Both used and new machinery can be qualified for equipment refinancing, but used goods usually incur higher interest rate than newer equipment. They will serve as collateral for your loan and a workable solution to cash flow problems.

7. Borrow to increase your working capital

There are funding solutions like Swoop that offer working capital loans that are simple, quick, and flexible. Working capital loans can alleviate short-term financial stress and are usually paid back within a year or less. Both secured and unsecured loans are available and you can borrow anywhere from $5,000 all the way to $25 million. If your working capital is tight, there are definitely a lot of options.

Get funded with Swoop!

In business, cash is king. Swoop makes it really fast and easy to access loans, grants, investments, and other funding options. Sign up to explore your options and choose the best funding solution for your exact needs.