Working Capital Strategies
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Working capital measures the availability of liquid assets that are needed to run the day to day activities. Proper management of this working capital is a key element to business success and a number one way to prevent business failure. Businesses can maintain a better position in paying their short term debts and also to fund the operational needs of the organization through different working capital strategies. Indeed, making working capital works for the company is a critical issue for growing businesses but exercising such strategies are already been proven to be effective by many companies. Strategy no. 1: Maintaining sufficient cash. Enough cash is the basis of credit, liquidity, and solvency of the firm. The business retains sufficient cash since it already surpasses its start-up stage wherein larger expenses are incurred. It makes them ready for any unforeseen events and conditions without causing too much loss to the operations and to the interest of the owners. It helps them avail cash discounts offered by their suppliers.
Strategy no. 2: Get paid now. Cash flows can be enhance if businesses know how to collect the amounts owing to them faster. Businesses need to know (a.) who owes the money?, (b.) how much is owed?, (c.) how long it is owing? , and (d.) for what it is owed? Undeniably, there is a need to handle receivables properly because late payment erode profits and can lead to bad debts. A clear credit practices have been successfully communicated to staff, customers and suppliers. A company establishes credit limits per customer and checks their paying capacities. Invoices are also issued promptly and clearly. Ten to fifteen percent cash discount is offered to encourage wholesalers for prompt payments. These strategies leave their statement of financial position with no accounts receivable. Thus, a tight collection policy is practiced. Strategy no. 3: Collect past due accounts.
It is important to get paid for products and services because profits only come from paid sales. The company has also experienced overdue accounts of their consumers. To handle these late payments, they call their clients whose invoices are out of date and inquire about those. The owners have assigned a person to follow- up their clients’ accounts. In difficult situations, they just take what the customers can offer as a payment and just agree on terms with the remainder. But other companies don’t implement interests on late payments. Strategy no. 4: Fulfilling customers’ order on time. Customers are the company’s first priority. They make their purchases everyday to ensure that it doesn’t get out of stocks. The owner and its employees really exert their effort to cater their customers’ needs by asking them politely of what they are looking for. They make them comfortable in communicating with them. They also follow what has been agreed especially the date of delivery. They are gaining continuously regular and loyal walk-in customers as well as wholesalers, hence, potential profits await the venture.
These strategies are also adopted and practiced by the new established business.