Manage Your Working Capital Efficiently In 2021
Working capital is an essential element in evaluating the business’s long-term financial health, irrespective of its size. It is a simple metric where companies can analyse their runway by comparing their current assets against their liabilities. A high working capital translates into sufficient liquidity, operational competence, and raised profits.
The pandemic outbreak has raised arduous challenges, bringing uncertainties, Disrupting the global supply chain, followed by a colossal shift in consumer demands.
Amidst the economic scepticism, optimising working capital usage and having enough liquidity is considered prudent for businesses to ensure that adequate cash levels are available for future opportunities. It brings more flexibility in business operations, expansion, as well as investing in newer products.
CFOs these days consider working capital management in their priority list to ensure smooth operations. Businesses need to focus on various ways to finance their working capital to reduce their risks.
Timely Payment To Supplier
When it comes to the payment process, timely repayment is considered a crucial aspect for businesses. A proper repayment plan can improve payables performance and reduce DPO (days payable outstanding) in businesses.
In the post-pandemic scenario, extension in DPO can result in a reflection of liquidity issues and also brings a negative Cash Conversion Cycle (CCC). Therefore, companies need to develop strong supplier-relationships, which can put them in stronger positions while negotiating deals. A happy supplier who avails a steady working capital can benefit in the long run as well when larger discounts and recurring bulk orders come into the picture. Suppliers have become the future of the post-pandemic business world since they drive business growth and ensure the availability of revenue and profit goals.
Tax-deferrals And Debtors
Applying for Tax-deferrals can help businesses to have tax-free growth. Besides, reassessing contracts and credit terms with debtors can ensure a stable working capital cycle at the right time. Businesses need to keep in mind that they cannot provide an extended repayment window, as it can impact their cash flow growth. CFOs should re-evaluate their credit terms to ensure that the offering to their debtors is relevant to the company’s cash flow requirements. This will lead to better management of credit control systems and preventing late-payment or defaulters.
Bulk stocks can saddle the businesses’ cash resources if efficient inventory management is not in place. On second thoughts, inadequate stocks can lead to unsatisfactory sales and hit on customer relations. Better communication and planning can help businesses optimise stock levels and avoid raising physical storage costs.
Timely checks on the inventory can help prevent uncertainty in the stock levels since it can make it difficult for the company to manage its sales. It is extremely vital to keep an eye on what you purchase. Besides, as the primary bridge between a business and its supply chain, the procurement between both can either break or make the working capital strategy of the company.
Across every industry, the pandemic has ushered in several working capital challenges and interrupted business operations for some time now. As the economic uncertainty continues to be a hurdle, businesses need to develop new strategies to finance their working capital that can prevail in the post-pandemic market. Focusing on inventory, payables, and other essential elements can place businesses in a better position to secure adequate cash flow and manage short-term commitments ahead of time. With conventional supply chains dismantled and the exact influx of FDI and remittances still in doubt, firms have to find creative yet local means to generate revenue from the market.