It can be easy to lose sight of your working capital and how hard it’s working when you’re busy with day-to-day operations. According to Grant Thornton, there’s around £136bn tied up in working capital in businesses across the UK¹. Optimising your working capital cycle can help free up that cash, making it available for investment in your business's future.
Whether you’re looking to purchase new equipment, expand into new premises, employ additional staff or enter new markets, unlocking the cash tied up in your business can make a real difference. Find out how with our top tips.
1. Review your current position
Understanding your current working capital and cash conversion cycles and how your existing processes feed into that is a good place to start. A thorough audit will include benchmarking against your peers and against averages for your sector and industry. It can help you spot strengths and weaknesses, and identify where you can make improvements. That could involve tightening up on invoice generation, tracking late payments, improving stock control, or changing payment terms.
2. Adopt automation
Using technology to automate processes can help reduce the length of your cash conversion cycle by speeding up cash collection and giving you access to up-to-date information. Automating invoice generation and chasing late payments, for example, can not only speed up the flow of cash coming into your business but also remove time-consuming manual processes and streamline your back office administration.
3. Keep an eye on stock levels
Cash tied up in excess stock holdings means that it’s not working efficiently. Ensuring stock levels are sufficient but not excessive can help reduce the amount of cash tied up in inventory. Technology can help you monitor stock levels more closely and regular reports can help you identify patterns in demand and generate more precise forecasts. Of course, there are always situations where you may need to stockpile in order to meet customer needs. Uncertainty around the terms of the UK’s exit from the EU, for example, has seen many firms increasing inventory to protect against any potential interruption in supply. Understanding the impact of this on your working capital and updating your cash flow forecasts accordingly can help planning.
4. Examine your supply chain
Reducing supply chain costs and risks can help improve and protect your working capital. Effective supply chain management can help you take control, from sourcing inventory to distribution and payment. Reviewing your terms of business, perhaps offering staged payments, discounts for early payment, or renegotiating contract terms can help you find efficiencies. Brexit uncertainty has thrown supply chain risk into the spotlight for many businesses. Reviewing your reliance on key suppliers who could be affected by changes in trade terms may help your business navigate the uncertainty, and should form an essential part of your contingency planning.
5. Employ solutions
There is a range of funding solutions to help you optimise your cash flow. We can work with you to identify where the key snagging points are in your cash conversion cycle and identify the right solutions to free up cash at each stage. Our solutions can give you the flexibility you need as your business grows. Examples include:
- Receivables finance – invoice discounting or factoring from HSBC can help you secure up to 90% of the value of your invoice the next working day. You can choose to retain control of your sales ledger and use our confidential service, or let our expert team manage it for you.
- Credit protection – working alongside our Receivables Finance solutions, credit protection can help protect your business in the event of late payment or bad debts.
To find out more about optimising your working capital, speak to your Relationship Manager.
¹ ‘UK Working Capital Study 2017’ Grant Thornton.