Entrepreneurs may face difficulties maintaining a perfect balance between current assets and current liabilities, i.e., working capital. Businesses need working capital to meet day-to-day business expenses, pay salaries, and cater to several other financial obligations. If businesses fail to maintain the balance between current assets and liabilities, it can lead to a working capital deficit and create troubles in managing business-related financial activities. It is here the need to raise working capital comes in. There are several ways an individual can raise business working capital. Read on to know about these ways in detail.
Ways To Raise Business Working Capital
Following are discussed effective ways to raise working capital for a business:
Trade Credit is a popular business-to-business agreement where suppliers offer borrowers credit limits and allow them to buy now and pay later. Small business owners or entrepreneurs can use Trade Credit to purchase equipment, material, and other related products without instantly paying any cash. The credit limit offered by suppliers depends on the current asset and liability, business need, and the buyer's credit profile. Trade Credit provides business borrowers enough time to raise working capital and repay creditors.
Bank Overdraft is an effective way to raise short-term funds. Here, lenders approve a specific amount for borrowers that they can use in their business per requirements. One of the major benefits of opting for this credit facility is that borrowers need to pay interest only for the amount utilised and not on the approved amount. However, borrowers need to be careful of not spending the bank specified amount/ limit, which they decide after assessing creditworthiness, business turnover and many other parameters.
Short-term loans refer to funds that help businesses finance daily business operations. These include buying inventory or raw material, paying staff salaries, rent of office or warehouse, electricity bills and other short-term maintenance expenses. Short-term loans come with a fixed rate of interest and fixed repayment period and, ideally, is secured loan. Depending on the credit history of a borrower, lenders decide the terms of the loan, and in case a business person has good relations with a creditor, he/she can avail this loan without any collateral.
Revolving Credit Line
A revolving credit line is an excellent way of raising capital. Financial institutions provide borrowers with revolving credit allowing them to withdraw, repay (as per their convenience) and withdraw again, meaning an available line of credit (up to a certain limit). The borrowing and repaying method of this financing option make it one of the most flexible ways to raise working capital for business.
Merchant Cash Advance
If a business accepts payment through cards, it can raise working capital via Merchant Cash Advance. In this credit facility, lenders approve an advance lump sum, easily payable through regular cash receipts on POS (Point of Sale) machine. Installing such machines not only ensures a hassle-free shopping/payment experience for consumers but opens new ways to secure credit in the case of goods and services providers.
Invoice Discounting is a popular way of injecting working capital into a business. Businesses need not wait for several days for their customers to pay and unlock cash tied up in this. For this, they have to utilise the company’s unpaid invoices and sell them to a financial services provider to receive the cash advance, which is a percentage of the invoice’s value. Here, business persons can rely on the renowned Invoice Discounting platform of KredX. Within 24-72 hours of selling invoices, the cash will get transferred to the borrowers’ accounts. Bottom Line From Trade Credit to Invoice Discounting, numerous options are available for raising working capital. However, countless working capital raising options can confuse borrowers during urgency. Hence, borrowers must be judicious about their requirements and select the right business working capital option
Tips To Boost Your Accounts Receivables And Get You Customers To Pay In Time