Business Development Cash is KING – Working Capital Cycle
Every business owner should be aware of the working capital cycle within their business and how important it is to cash flow.
The key to successful working capital management is reviewing all the essential steps in the working capital cycle.
The diagram below demonstrates how the working capital cycle operates.
By managing the cycle more efficiently (e.g. making the circle turn faster) will generate more cash for your business and will reduce the need of bank loans required to supplement your working capital. Every business owner should implement policies and procedures at every point in the above cycle to ensure maximum efficiency. Below are just a few ideas that you may find helpful in managing your working capital cycle.
Purchase Stock / Supplier Payments (Stock Management)
- Implement sound physical controls to minimise perished stock or the risk of theft.
- Implement a buying policy that covers:
- Policy on receiving discounts for early repayment;
- Identification of core stock and the required levels to be on hand
- Authorised suppliers, ensuring there is not an over-reliance of any one supplier
- For businesses that hold large quantities of stock consider using specialized stock management recorded software.
- Have a credit control policy that includes credit checks for all customers prior to offering credit.
- Set credit limits for each customer and stick to them.
- Have strict policy on payments terms.
- Send invoices to customers as soon as work is completed, not at the end of the week or month.
- Run regular aged debtors reports identifying slow paying customers and make contact early to discuss issues.
If you would like to discuss how we can help improve your business please contact us for a no-obligation consultation.