One of the ultimate goals for your business is to make a profit. However, there are many factors that your company encounters daily that can take that cash from you. Finding these instances in your cash flow can keep the money you earned in your pocket so that it is available if you have an emergency, want to add a new product line, or need to expand your operation. Here are a few ways to free up your working capital.
Make Your Payments Work For You
Analyze the payment terms that you have with each vendor that you work with. They should be at least 30 days until your payment is due. If you find invoices that have a shorter period of time until you must reconcile it, reach out to that company and renegotiate with them. You will need to have a good credit rating to do this however. Try to get multiple installments if possible, especially if you have a consistently large bill with them. Doing this keeps your working capital in your pocket longer and allows you to use it if the need arises.
Follow Up With Customers On Invoices
In the same way, evaluate the payment habits of your customers. Note which ones pay immediately and consider offering a discount to them for rectifying this quickly. Think about offering this to your negilant clients as well. This may encourage them to submit their money to you quicker. Watch for the patterns that emerge as these invoices are fulfilled, then list which organizations you need to follow up with. You can also look into collaborating with a factoring company to acquire the cash that is owed to you. They will bill and communicate with the individuals and companies who owe you, leaving you to organize your working capital.
Monitor Your Stock Closely
Having an excessive inventory can drain your profits. This means that you have spent money on products that sit on your shelves instead of being sent to your customers. You can utilize these funds in better places, such as offering new services to your clients. Analyze the patterns of your shipments in the past six months. Note which items are popular and which ones rarely leave your warehouse. Make adjustments to your order that match these trends, then implement the changes throughout your company. This will redirect this excess cash to your working capital and allow you to spend it elsewhere.