Working capital, also known as networking capital (NWC), is the difference between a company’s current assets, such as cash, accounts receivable/customers’ unpaid bills, inventories of raw materials and finished goods, and current liabilities such as accounts payable and debts.
NWC measures a company’s liquidity and operational efficiency and its short-term financial health. A company with a positive NWC should be able to invest and grow. A company’s current assets must not exceed its current liabilities. This could cause problems for growth or repayments to creditors. It might even go bankrupt.
NWC estimates are calculated from the corporate balance sheets. Current assets include inventory, cash, accounts receivable and inventory. Other assets that are likely to be liquidated in the next year or converted into cash within the next year are also included. Current liabilities include current accounts payable, wages and taxes payable, and the portion of long-term loans that are due within the next year.
Every business needs working capital. The key to having enough funds is to find the right balance between your liabilities and assets. Most organizations have to balance their liabilities and assets while maintaining a good credit rating. This is the challenge they face. Continue reading to learn more about raising your working capital.
MANAGING TRADE CREDITS
It is important to keep good relationships with your trade creditors. They provide trade credit in business supplies and equipment, which can be paid off later. This arrangement will allow you to borrow more money and repay creditors later. Trade creditors will assess your business volume, past payment records, and current liquidity before approving trade credit.
BANK OVERDRAFT
Bank overdrafts are a quick way to raise short-term funds. They also allow for withdrawals of current account balances. Your credit history, your business turnover, collateral assets and the reason for the excess are all factors that affect the amount of the overdraft.
WORKING CAPITAL LOANS
You have two options for working capital loans to choose from depending on your requirements: secured or unsecured loans. These loans can be used to increase a business’s money reserves in the short- or long term.
INVOICE DISCOUNTING
Invoice discounting is one of the easiest and most accessible forms of invoice financing. This involves using invoices and receivables as collateral assets. This is a short-term way to raise funds and rotate money that can be used to cater to more business volume.
MERCHANT CASH ADVANCE
Merchant cash advances can be a great way to increase your working capital if your business accepts card payments. Lenders will usually grant a lump sum advance that regular card receipts can repay. A merchant cash advance is for small businesses with regular card transactions each month.
REVOLVING CREDIT LIST
This arrangement can be made with your lender and creates an ever-available line of credit (up to a certain limit). It can be repaid at any time you choose, either in one lump sum or monthly installments.
There are many options for raising working capital. You only need to decide what is best for your business and then make an informed decision. All these options are now easily accessible and reliable.
