Imagine your business is like a motorcycle. To keep the motorcycle running smoothly, you need the right amount of air in your tires. Working capital is like that air! It’s the money that you readily have available to cover everyday expenses and keep things running. For any MSME business working capital is very crucial for survival and further growth.
What Working Capital Can Do for Your MSME
For an MSME business, working capital can do a lot for their strong existence and continued growth.
Pays the Bills: Rent, salaries, electricity – working capital ensures you have the cash to cover these ongoing costs without any struggle, it gives more relief to you as an MSME business owner.
Keeps You Stocked Up: Enough supplies on hand means happy customers. Working capital helps you maintain the right amount of inventory to avoid stockouts. Having enough working capital helps you to buy more inventory as and when you see a spike in the demand for the goods/services offered by your MSME.
Helps You Grow: Thinking about expanding or investing in new equipment? Working capital gives you the freedom to explore these opportunities.Growth options need financial investment and working capital makes it possible for you.
Builds Trust: Timely payments to suppliers show you’re reliable. This can lead to better deals and terms in the future.
Boosting Your Working Capital
So now that you know some of the advantages of working capital, you may think of the working capital loan needs of your MSME. Fortunately there are multiple NBFCs now offering Unsecured commercial loans to MSMEs.
Here are some tricks to keep your sufficient working capital for your business:
Inventory Smarts:
Order just what you need, when you need it (Just-in-Time). This saves on storage space and prevents outdated stock.
Classify your inventory (ABC Analysis). Focus on managing high-value items carefully to avoid running out and free up cash tied up in slow-moving ones.
Use technology to track inventory levels. This helps you forecast demand better and avoid overstocking or stockouts.
Get Paid Faster:
Discounts: Offer discounts for early payments. This incentivizes customers to settle their bills quicker.
Set clear credit terms with deadlines and late payment penalties.
Invoice Automation: Automate invoicing and send them out promptly. The faster the invoice reaches your customer, the faster you get paid.Have a system for following up on overdue payments.
Manage What You Owe:
Supplier Terms: Negotiate longer payment terms with suppliers if possible. This provides more time to get payments from customers before payment to vendors.Take advantage of cash discounts offered by suppliers for early payments. But make sure the discount outweighs the benefit of holding onto the cash.
Cut Costs Wisely: Regularly review your expenses and identify areas to save. This could involve renegotiating contracts with vendors, using less energy, or streamlining administrative tasks.
Task Automation: Consider automation for repetitive tasks. This can free up your time and potentially reduce staff costs.
Review your pricing strategy:. Are your prices competitive and generating enough profit?
Extra Help When Needed:
Line of Credit: This is like a credit card for businesses. It gives you access to short-term cash to cover temporary gaps in your cash flow.
Inventory Financing: Use your inventory as security for a loan. This frees up cash for other needs while maintaining your stock levels.
If you struggle with maintaining sufficient cash in reserve, a lender who gives out working capital financing options to customers could be a good source for you.
Conclusion:
Now that you have understood almost all about the importance of working capital and tricks to reserve them you may also want to know about ideal sources to get working capital for your MSME. There are many financial institutions which are actively lending working capital loans for businesses. But particularly for MSMEs who are smaller businesses the ideal lender would be an NBFC. This is because of the MSME friendly loans offered by NBFCs. Collateral-free loans, speedy approval process, minimum need for document submission, no bureaucracy etc are some of the attractive features that make NBFCs the best option for small businesses.