If you have ever looked at your business’s financials and wondered whether you would have the cash to meet payroll or order new inventory, you know how important working capital is to keep your business running. Properly managing your working capital is key to your company’s basic financial health and continued success. It helps you maintain balance between growth, profitability, and liquidity.
Proper management of working capital, though, can be very challenging for businesses, across industries and company size. In this article, we’ll look at what working capital is and ways that businesses can boost their chances of securing it.
What is working capital?
Working capital is the difference between a business’s current assets and current liabilities or debts. Said another way, working capital is the cash you have access to in order to fund daily operations.
As a financial metric, working capital is a measure of how efficiently a business is operating, and how stable it is in the short term, indicating whether it has sufficient cash flow to cover short-term expenses and debts.
The challenges of maintaining working capital
Across industries, businesses can face common obstacles to maintaining adequate working capital. These can include:
In addition to the above, many businesses may experience difficulty in securing traditional financing. Businesses that are small, young, or rapidly growing may not be able to meet the requirements for bank financing and other traditional funding. It also may be that the terms and repayment schedules for traditional financing are difficult to meet while remaining profitable. For these reasons, many owners of small and medium businesses turn to alternative financing and investor financing to help with working capital.
Four ways businesses can improve their chances of securing working capital
Business owners facing a cash crunch can do a few things to improve their chances of securing working capital. These include:
Using invoice factoring to secure access to working capital
In invoice factoring, a company turns over its account receivables to a factoring company. The factoring company gives the business an advance and then follows up with customers for invoice payments. Once invoices are paid, the client company receives the balance minus a fee. Because it offers fast access to working capital without the difficulties inherent to traditional financing, invoice factoring can be a good option to solve short-term gaps in working capital for businesses at almost any stage.
Looking to secure working capital for your business? We can help. Prairie Business Credit is a national working capital provider to young, growing, or recovering businesses. We offer accounts receivable financing, purchase order financing, and equipment financing. Our company serves both as a trusted financial resource and consultant to entrepreneurs dedicated to building their businesses and ensuring their success.
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