Every business owner would like to enjoy a perfect cycle where they sell their goods and services, receive payment in time, and use the money for future business operations. However, the truth is that there is often a delay between the time you make a sale and when you get paid. Working capital financing allows you to build a financial cushion that can sustain your daily business activities.
Advantages of Working Capital
For a business to operate, it needs capital. A manufacturer needs equipment for production while a freelancer needs a computer and a desk for a home office. Working capital can either come from external financing or operations.
Having working capital is not only beneficial but also necessary. Picture a situation where your business carries accounts receivable, yet in the meantime, you need cash for your business to run. You still need money for your daily activities like getting supplies and labor, and yet you have not received cash from customers.
You may have to opt for working capital financing for you to stay operational. Working capital is meant for short-term financial needs. As it is a short-term need, it can easily be covered using short-term financing sources like credit lines with high interest rates but have less complicated loan application processes.
Financing with Working Capital
You can use working capital financing for daily operations or even the growth of your business if you manage it properly. This means you spend less than you take in, and at times, being left with some funds for unexpected expenditure.
Strategies for Working Capital Management
Management of inventory: If your money is tied up in inventory at your shelves, then you have less working capital. However, you need to have enough products to meet customer demand. Therefore, learn how you can balance between having enough for customer demand and not too much to lack working capital.
Terms of Payment: The earlier customers pay you, the earlier you get working capital for operations. You also do not want to be so strict on payment and end up losing customers. Discuss favorable payment arrangements for both you and the customers.
Budgeting: While you may not be able to predict your business’s upcoming revenue and expenses, you can use past trends to come up with different scenarios for the future. This practice can guide you into making better choices on using your working capital.
If you are working capital financing for your business, then consider First Source Capital for your business needs.