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Efficient working capital management is essential to ensure the financial health and sustainable growth of any company, regardless of its size or industry. It represents the necessary balance between available resources and short-term obligations, allowing the business to remain stable, solvent, and ready to seize expansion opportunities. In this article, you will find practical and effective strategies to improve the management of working capital in your company, ensuring healthy cash flow and greater competitiveness in the market.
In this article, we will cover:
Working capital is the amount of resources a company has to finance its daily operations, such as purchasing raw materials, paying salaries, suppliers, and other operational expenses. In other words, it is the money needed to keep the company running in the short term.
Working capital is calculated by the difference between current assets (such as cash, inventory, and accounts receivable) and current liabilities (such as accounts payable and short-term debts). The basic formula for calculating working capital is:
Working Capital = Current Assets - Current Liabilities
Working capital is crucial for a company's financial health because it ensures the necessary liquidity to meet short-term commitments, such as salaries, suppliers, and other operational expenses, avoiding disruptions in daily operations. It provides operational stability and financial flexibility to deal with unexpected events and revenue downturns, as well as enabling investments in growth opportunities.
In addition, good working capital management can reduce financial costs by minimizing the need for short-term loans, improve relationships with suppliers, prevent the company from becoming insolvent, and increase the confidence of investors and creditors. It also acts as a buffer against market risks, improves financial planning, and allows for more strategic management of the company's resources.
It's important to have full control of the accounts and suppliers to be paid, to ensure that all commitments are met on time, without incurring interest or penalties that could financially impact your business. Maintain a transparent relationship, especially with the most strategic suppliers, to keep an open channel for negotiating longer payment terms to improve cash flow. This allows the company to use resources for longer before making payments.
Whenever possible, negotiate discounts for upfront or early payments, as long as this does not affect the company's cash flow.
Accelerate cash generation and payment collection by offering discounts to customers who pay in advance or by establishing shorter payment terms. It is also important to analyze the credit profile of customers before granting longer payment terms to avoid defaults and delays.
Idle inventory consumes resources and space. Manage your inventory efficiently to keep only what is necessary, using techniques such as Just in Time (JIT) or ABC inventory control to balance demand and supply. In addition, it is necessary to improve inventory controls. Use inventory management software to monitor and adjust levels in real-time.
Identify areas where the company can save, such as cutting unnecessary expenses, renegotiating contracts, or services. Automating finances ensures greater control and mapping of operating expenses, thereby reducing costs and increasing efficiency, freeing up resources for other areas. Finance and payment management platforms, like Jeeves, are allies in this control in a simple and intuitive way, reducing financial bottlenecks in companies.
Make periodic cash flow projections to anticipate cash inflows and outflows, allowing you to adjust operations as needed. It is also necessary to understand the company's operating and cash conversion cycles to find opportunities to reduce the time needed to convert assets into cash.
Your company's available resources should not remain idle but should ideally generate returns, such as interest from financial investments, for example. This increases your available working capital and keeps your company better safeguarded for future needs.
Use revolving credit lines or loans strategically to cover specific cash needs, analyzing the most competitive rates and conditions so as not to compromise the company's financial health.
Evaluate the pricing policy to ensure that it covers all costs and generates sufficient profit margins to sustain operational growth.
It is necessary to establish clear working capital targets and maintain performance indicators (KPIs) to monitor working capital regularly.
Considering that the economic scenario changes frequently, it is essential to periodically review financial policies and adjust your working capital strategies to adapt to new conditions.
All these practices will help your company maintain healthy working capital, improve cash flow, and ensure long-term sustainability and growth. In this context, technology becomes a great ally to quickly and efficiently combine all these best practices, and the lack of good tools in your company can directly impact your finances.
Jeeves offers a digital solution capable of effectively managing your bills and suppliers, providing various resources for generating financial reports, controlling, and categorizing expenses for all teams, making your finances more organized and predictable, reducing risks to your business. It is possible to manage all your finances and payments in one place, allowing artificial intelligence (AI) advancements to save time and costs for your operation.
Your company can also have more liquidity and increase its working capital with the Jeeves Digital Account, which makes the balance available in your business account generate returns of up to 5% APY from day one, with total flexibility for withdrawals when you need. Additionally, the more balance you add to your Jeeves account, the more your company will be able to spend on cards and transfers with credit. Open a Jeeves account and increase your business growth capacity.
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