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What is working capital?

Kriya Team
September 26, 2019
2
min read
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What is working capital? We answer this, plus other questions about how to understand your working capital position and what you can do to improve it.

What is working capital? It’s a question that people often underestimate, but knowing the answer could mean big things for your business. Let’s get to know working capital a bit better by asking:

  1. What is working capital?
  2. What does working capital tell you about your business?
  3. How can you improve your working capital?
  4. How can working capital help your business grow?

1. WHAT IS WORKING CAPITAL?

Working capital is the money you have available to run your day-to-day operations and invest in your company’s future. Creating products, employing more staff and developing new and exciting ideas are great ways for your business to grow. Working capital can be the fuel to drive you forward, so it’s important to keep an eye on it lest your tank runs dry.

2. WHAT DOES WORKING CAPITAL TELL YOU ABOUT YOUR BUSINESS?

Working capital can tell you whether or not your business is running effectively. At a glance, you’ll be able to judge whether your current assets are enough to cover your current liabilities. In other words, is the total worth of your business equal to, or greater than, what you’re currently liable for?

Working capital is a great tool to see how healthy your business is but it has more to offer than just a review of your current cash flow. Working capital can also show you the following:

  • How efficiently your inventory is being managed
  • Whether you’re paying your suppliers too quickly
  • If you’re collecting payments from your debtors too slowly
  • How your debt is being managed

3. HOW CAN YOU IMPROVE YOUR WORKING CAPITAL?

There are many ways to improve your working capital. For instance, you could:

  • Try an incentive plan to get your debtors to pay invoices on time or early
  • Negotiate shorter payment terms with your debtors
  • Ensure that you pay all your debt obligations on time
  • Reduce the inventory of your raw materials and finished goods
  • Find alternative suppliers that offer better payment terms or discount options
  • Seek out additional revenue streams that could be available to you
  • Get a line of credit; bank overdrafts, business loans or invoice finance are a few easy solutions for your company’s working capital needs

4. HOW CAN WORKING CAPITAL HELP YOUR BUSINESS GROW?

Imagine this. You run a small business and your product is performing or selling off the charts, but you’re limited by space. A great opportunity comes along. You can rent a premises that will not only double your visibility, but also your floor space.

The only problem is that you’ll need to pay more rent, increase your stock and probably hire more staff. You know you can’t let this opportunity slip away but you need a positive working capital position to make it happen.

At MarketInvoice, we’re dedicated to helping the UK’s businesses grow and thrive. Click here to find out how our hassle-free business loans and invoice finance solutions can unlock working capital and propel your business forward.

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