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  • Business Finance
    • Working capital

How to boost your working capital

  • Article

We've all heard the old saying, 'cash is king' but, as all successful businesses know, what really counts is how efficiently cash flows through your business.

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. And the disruption caused in recent years by external factors such as Brexit and the pandemic mean that a robust focus on optimising working capital is more important than ever.

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. Disruption to supply chains caused by the pandemic, 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.

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 from HSBC could help you secure up to 95% of the value of your invoices 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, our Credit Protection option could help protect your business in the event of late payment or bad debts.
  • Asset Based Lending - could provide flexible funding against the value of assets within your business with bespoke revolving lines of credit or term loans
  • Trade Loans or Letters of Credit – could help optimise the flow of working capital and provide greater security when trading internationally. Please note these products are subject to eligibility criteria, and/or credit status. An HSBC UK business bank account is not required. More details are available on our Products and Solutions pages.

To find out more about optimising your working capital, speak to your Relationship Manager.

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