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5 Tips On How To Increase Your Working Capital

May 24, 2014, 05:53 AM

The more working capital a business has, the more power it gives the business to both run efficiently and find new ways to generate income.

Not only is this needed to handle any arising expenses, but having a healthy record of working capital will also make it easier to take advantage of offerings from financial institutions, such as loans and other types of services that require good credit. Naturally, keeping plenty of working capital around may be difficult for a budding business. But there are some things you can do to help increase your working capitals, so let’s discuss them.

1. An easy way to increase your working capital is to borrow.

Whether taking on short-term or long-term debt in order to increase working capital, if this money is handled well and spent wisely, the investment and additional costs will be easily outweighed by your good business acumen. Financial institutes are more likely to loan your business money if there is a good history between the two organizations and if your business has done well to keep payments up-to-date in the past.

2. Use your personal equity to help fill out the working capital of your business.

If you can spare it, then using what you have available to increase the working capital can pay off in the long run. You can always pay yourself back in full later once things have picked up.
3. Another option is to begin collecting any due payments a bit faster than before.

When attempting to implement this, make sure not to walk over your customers. In the end, keeping those business relationships is more important than having an increased working capital. That said, if you hope to collect payments sooner, you can begin sending out bills before the end of the month. This prompts many clients to pay sooner without having to necessarily ask them to pay sooner.
4. Refinancing your assets can be a great way to bring in extra working capital when required.

Using the equipment or other property that the company owns, you’re basically taking out a loan against their value. When going this route, make sure that the cost of the payments is figured into any plans moving forward.

Be sure to educate yourself first on how refinancing works and if it is the best option for your business.
5. Avoid paying cash!

It sounds strange to many, but in most cases, it’s smarter to finance very expensive business needs such as vehicles and other equipment. This does a few things. One, it continues to build your excellent credit. Two, it leaves a lot of working capital available to be spent on other important tasks or purchases. Having more working capital also makes it easier to finance things in the future, including loans, because it gives financial institutes confidence that your company is able to handle anything it must  afford.

In the end, having working capital may become the difference between a whole new income stream and missing out on a great opportunity. Taking care to increase the amount of cash your company has on hand may greatly improve your image to financial institutions as well as open many other doors. If nothing else, it provides a bit of a safety net that would be lost should that cash not be present.


Originally posted on: 5 Tips On How To Increase Your Working Capital

L Roberts
Underwriting Analyst/Credit Analyst
Lease Funders
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