In the face of a swiftly-evolving business model coupled with numerous disruptions in the same, working capital needs are fundamental that firms often lose sight of.
However, with alternative sources of debt funding, GST implementation, and technological advancements, it has become the primary call to rethink the current approach that businesses have towards effective management of the WC.
Catering to this demand, irrespective of whether the entity in question is operating at an online of offline space, effective WC management will surely prove to be a value driver for all businesses.
Since working capital (WC) is the cash available to meet the existing short-term obligations, its proper management has a widespread impact on multiple aspects of a business.
Importance of Working Capital management
The sign of efficient business management is its ability to ensure the utilisation of working capital management (WCM) to its best potential.
It should ensure the proper maintenance of balance amongst liquidity, growth and profitability of a business.
While this is a broader look out into the importance of WCM, here is a brief glimpse into how working capital helps your business stay agile –
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- Solvency of the business
The pre-requisite to long-term solvency of any company is its capability to meet the short-term obligations. Catering to this demand, an efficient WCM ensures that businesses can pay their short-term debts within the pre-set time that includes –
- Payment against the stocking up of inventory,
- Salary payment, etc.
- Enhanced credit profile
The operating cycle of any company is well-funded, considering that it has adequate WC at its disposal and can hence pay off its debts well within the stipulated time.
It is likely to boost the credit score of the company in question. Under such circumstances, yielding financial assistance from reputed NBFCs becomes hassle-free.
On the other hand, all companies, irrespective of the genre of their trade, can also trust financial aids from leading lenders like Bajaj Finserv to meet their working capital needs.
It ensures that business has convenient access to adequate funding sans digging deep into their pockets.
Their business loans come with a high-value amount of up to Rs.30 lakh that can be used to –
- Maintain inventory,
- Boost the WC,
- Invest in infrastructure, etc.
Such financial leverage is coupled with another add-on facility, in cases of existing borrowers – pre-approved offers. Such offers ease the application process to avail financial assistance.
- Capability to face financial crises
Financial crunches are common while involved in a business. With higher vulnerability and financial risks, businesses need to stay financially prepared for inevitable and unforeseen circumstances.
Understanding the working capital status of a firm ensures that companies have a better insight into their financial standing and can invest accordingly to boost their shortcomings.
- Optimum usage of fixed assets
Efficient management of the available WC enables organisations to use the current fixed assets effectively. It is essential considering that in cases of a decreased WC, fixed assets of a company stays idle presenting two cases –
- Depreciation on the idle fixed asset.
- The incurrence of fixed expenses on fixed assets despite them being idle.
Thus, efficient management of the WC ensures that the above mentioned unnecessary financial burden is dealt off, conveniently.
- Expansion of business
The expansion of business brings in multiple leverages for its trade opportunities that comprise –
- Widened clientele base,
- More branding opportunities,
- Multiple revenue streams established, etc.
However, the expansion of the business requires substantial funding. This additional financing is arranged with the availability of adequate WC. Following this, the implementation of the expansion program can be carried out efficiently.
Such queued-up leverages bring in optimum management of working capital needs. Entrepreneurs also have to acknowledge the fact that this management includes managing of accounts receivable, cash, inventories, and accounts payable.