Why it is important to optimise working capital
Optimising working capital is important because it improves your business efficiency which, in turn, boosts cashflow and profitability. Factors that can negatively impact working capital include wasteful spending, overstocking merchandise, poor management of labour resources on Work-in-Progress (especially in service businesses) and poorly controlled collection procedures (such as late invoicing or inadequate creditor control).
A strategy as simple as providing telephone training for the person who chases your debts can have a positive impact on working capital and cashflow by helping to ensure that your customers pay on time.
Previously on this blog we covered other strategies that boost working capital, such as:
- Prompt invoicing
- Managing stock and work-in-progress
- Controlling costs
- Managing overheads,
- Reviewing contracts and negotiating better terms with suppliers
- Swapping short-term debt for cheaper long-term debt
Accurate forecasting is another tool that can be extremely helpful. However, it requires access to reliable financial information and not all businesses have the in-house expertise and resources to produce accurate forecasts. Where this is the case, outsourcing can be a cost-effective solution. Real time accounting services provide access to qualified accounting professionals and 24/7 reliable information about your business along with commentary and analysis. This improves decision making and helps make your business more profitable.
FPM organises regular seminars to help clients improve their working capital management. If you would like an invitation to the next event…