60 Seconds On… Working Capital
Working Capital: A Quick Summary
A business’s working capital (WC) reflects the amount of cash it has at its disposal and can deploy almost immediately. Working capital is critical for any business. It is used to keep a business operating smoothly and meet all of its financial obligations within the coming year. This includes paying its trade creditors for its day-to-day trading operations.
Growing businesses often suffer from a lack of cash flow due to long payment terms. However, Invoice Finance can be a solution to this problem.
Working Capital is also known as…
Operating liquidity; cash flow; current ratio; or net working capital.
Why Understanding Working Capital is Important
It is critical for a business to understand their cash flow status and their future requirements.
Many strong businesses see good profitability and growth but poor working capital when their customers or clients require long credit terms.
If current assets are less than current liabilities, a business is running on a cash flow deficit. When this happens, a business may find it difficult to fund its operations on a day-to-day basis. This can include paying staff, rent or creditors.
Understanding your WC position can be as fundamental as a sink or swim moment.
How to Manage Working Capital
Common working capital finance solutions include overdrafts, revolving credit facilities or Invoice Finance. These can be used simply and effectively on an ad-hoc basis to fill the gaps of your cash flow requirements.
Some businesses may require finance to manage seasonal fluctuations. This is where Individual Invoice Finance / Selective Invoice finance can help!
To find out more about how Invoice Finance can help your businesses cash flow requirements, click here. Or contact a member of our team today.
Key Takeaways
- WC is critical since it is needed to keep a business operating smoothly.
- Why is WC so vital? This is the money that is used to cover all of a company’s short-term expenses, which are due within one year.
- WC is the difference between a company’s current assets (except cash) and current liabilities.
- WC is used to purchase inventory, pay short-term debt, and day-to-day operating expenses.
- Invoice Finance from Accelerated Payments is one tool your business can use to better manage your working capital.
