• How To Increase Working Capital

    A short guide about how to increase the working capital of your business.This is a short article about how to increase working capital within your business.

    RAISE WORKING CAPITAL

    What Is Working Capital?

    Working capital (WC), in financial terms, is the amount by which the current assets of a business exceed its current liabilities. Current assets, or short term assets are the:

    • Cash held.

    • Stock (also called inventory).

    • Accounts receivable - outstanding invoices to debtors for goods or services supplied.

    Current liabilities are all creditors that are due to be paid with a year.

    The calculation is as follows:

    • WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES

    In practical terms, companies often consider their WC to be the amount of money that they have available at any given time. That cash can be used to pay for raw materials, staff wages and other overheads. Therefore, I have also provided some tips on improving cash flow below.

    If current liabilities exceed current assets, that is known as a "working capital deficit" or "working capital deficiency". In such situations, a business will be likely to have cash flow problems as there is not enough cash being generated, to over expenditure as it falls due.

    How To Increase Working Capital

    There are a number of ways to increase working capital which are explained below. However, please note that their degree of immediate impact on the cash position of a company will vary.

    • Increase profits - if the company increases its profit margin, the amount made on each sale increases. These type of changes will take time to work through into an improvement in the cash position. Increasing the volume of sales, without a commensurate increase in costs will also increase working capital.

    • Inject capital - an injection of capital (equity funding) into the business will increase working capital immediately. This could be your own money, or money from an investor.

    • Borrowing - taking out a loan, overdraft, or some form of receivables financing will have the effect of boosting the WC of the company quickly.

    • Extending debt terms - by extending the term of current debts, so that they are reclassified as long term debts (due in more than one year), will have the effect of improving your WC position.

    • Liquidate long term assets - by selling any long term assets for cash, you will boost your WC position. This could include selling and leasing back equipment, plant and machinery.

    Speeding Up Cash Flow

    There are a number of ways of boosting the cash position of your company, and improving cash flow. These include:

    • Quicker conversion - faster conversion of current assets to cash will speed up your cash flow. For instance, reducing the time that debtors take to pay or liquidating stock will help boost your cash position. The speed with which receivables are converted to cash may be improved by good credit control, or focusing on selling customers that will pay quickly. Accelerating your billing cycle can also play a part. Not waiting until month end to bill, or introducing partial deposits could be ways of improving your cash flow.

    • Choosing suppliers - that will offer you discounted pricing can increase margins and improve cash flow, also avoiding paying any late payment penalties will help minimise the cost of sales.

    • Review your costs - if you review your costs and seek to drive them down as far as possible, you will again increase your margins and boost your WC in time.

    Share with:

Related articles

  • Read More

    Avoid The Queues - Personal Service Business Funding

    The launch of the Government's Coronavirus Business Interruption Loan Scheme (CBILS) on Monday will have been a welcome lifeline for many UK businesses.However, we have heard some reports of:Despite these issues we hope that it will help many UK businesses get through this crisis.There are alternative forms of funding, such as invoice finance facilities, available from a broad range of...

  • Read More

    How To Get Invoice Finance During UK Lockdown

    Are you concerned about needing to arrange business finance in the event of a UK wide lock down?We are still able to help you arrange, and use, an invoice finance (or factoring) facility, even if there is a full lock down in the UK, due to the novel coronavirus outbreak. Funding can be in your bank account within a few days.APPLY ONLINE NOWAt the present time, due to the outbreak of coronavirus,...

  • Read More

    Funding Big Services Contracts Relating To Novel Coronavirus

    As expected the Government's preparations for a novel coronavirus epidemic in the UK have led to big contracts being placed for support services. In some cases these government contractors will require additional funding.We have been speaking to a communications company that have been awarded a multi-million pound contract to provide communications services, relating to the coronavirus...

  • Read More

    Sales Finance For Hand Gel Sanitiser & Hand Wash Orders In Wake Of Coronavirus

    As the hysteria around the spread of coronavirus (COVID-19) across the UK continues, there are news reports that items are being rationed by some pharmacy chains such as Boots and LloydsPharmacy (BBC News 03/03/20).These appear to include items such as:I have heard local reports from friends that they have been visiting different shops to try and find hand gels and hand wash. It appears that some...

  • Read More

    Financing Large Orders For Coronavirus Preparations

    Concerns about Coronavirus (CoV or COVID-19) affecting the UK have been rising on the back of media reports, despite some statistics suggesting that the threat may not be as significant as that from normal seasonal flu and other diseases. Regardless of the situation, the Government is taking action.Concern about the virus formerly known as “2019 novel coronavirus" has resulted in the...

  • Read More

    Help With The Christmas Payments Slowdown

    Christmas is only a few weeks away again, and it is now that many businesses will begin to notice the annual Christmas payments slowdown. This is when customers can take longer to pay.This can be due to:The impact on the cash flow of suppliers can be a problem. If customers don't pay as promptly as they should, or have previously, you won't have the cash coming in to meet your own creditor...

  • Read More

    Are Cash Flow Constraints Stopping Businesses Taking Orders?

    Marketinvoice published some research in Finance Monthly, that indicates that some 87% of businesses may be stopped from taking on potential orders, due to cash flow constraints. That's a large percentage to be turning away business, at a time when our economy is experiencing little growth in GDP (Gross Domestic Product - the key measure of economic growth).There continues to be, what I would...

  • Read More

    Why Do Profitable Businesses Sometimes Have Cash Flow Problems?

    Why do profitable businesses sometimes have cash flow problems? The answer, is because profitability and good cash flow are not the same thing. Whilst it is more likely that your cash flow will be good if your are profitable, it is far from a certainty.The reason that profitable businesses can still have cash flow problems is to do with how quickly their customers pay, versus how quickly they...

  • Read More

    How To Improve Your Business Cash Flow

    Three simple steps to improve the cash flow of your company are explained in this short explainer video:For further help improving the cash flow of your business, we have some additional resources that will be of interest.Firstly we have an article which explains 10 steps that you can take to increase cash flow.Secondly, if you are looking for a cash injection into your business, please see...

 

 

Examples of just a few of our finance partners:

marketfinance
bibby
ifg
hitachi
marketinvoice
lloyds bank