Improving the way you manage your working capital will make your business more resilient to economic uncertainty, says Feargal McCormack.
Careful management of working capital will be critical as business prepare for Brexit. Improving working capital builds resilience and is a practical and cost-effective way to protect your company’s profitability and fund growth.
Practical strategies to improve working capital include:
◆ Managing customers: Prompt invoicing and effective control of account receivables and debtors minimises payment times and provides an early warning of potential bad debts. Examine how long it takes to bill your customers and look for ways to reduce this time and build efficiency.
◆ Managing stock and Work-in-Progress (WIP): Businesses sometimes make the mistake of allowing too much working capital to get tied up in stock and WIP. Implementing a robust stock and WIP management system that keeps stock to a minimum will improve your working capital. Always remember that the value of WIP normally reduces over time as customers / clients may forget the value of the service provided.
◆ Managing suppliers: If your business does not have a system that provides regular reliable data on how much you are spending with individual suppliers, you may miss out on opportunities to negotiate better terms.
◆ Managing overheads: Cost control and the elimination of unnecessary expenses will improve your working capital. Keep your overheads under review and look for opportunities to substitute cost-effective alternatives where appropriate.
In addition to these practical strategies, options such as sales credit insurance, leasing, asset-backed finance, debt factoring, invoice discounting and effective tax and VAT planning may also have a role to play depending on your business circumstances.
FPM will provide expert practical guidance on working capital management at free seminars in Belfast, Newry and Balbriggan on 25 May 2017. The events, run in association with Credit Risk Brokers and Euler Hermes are designed to help businesses understand the critical importance of tracking and managing cashflow for growth, resilience and for peace of mind.