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.