6 Ways to Preserve Your Working Capital

January 18th, 2022

A healthy level of working capital is essential for any business to successfully operate and achieve growth. Here are six proven ways to preserve and improve business working capital.

Liquidate your unused or unproductive assets

Assets tie up your working capital, so you need to be using them regularly or profitably to justify having your business funds invested in them.

If any of your assets aren’t being used regularly or profitably in your business, there are a range of ways you can liquidate them to boost your working capital. Some potential options include:

  • selling these assets,
  • leasing the assets to another party to generate income from them, or 
  • Arranging sale-back finance, where you essentially sell these assets to a financier to free up the funds you have tied up in them, and then continue to use the asset while making regular repayments.

Restructure your business debt

Restructuring your business debt can give you access to more flexible finance on terms and conditions, especially if you have an inflexible business loan. Several more  flexible business finance options are available instead that can help you preserve and improve working capital. These flexible options include:

  • invoice finance, which allows you to access cash from your customers’ unpaid invoices.
  • Asset and equipment finance, which helps you to get the assets you need to grow without eating into your working capital.

It’s worthwhile seeking advice on which options best suit your business needs and goals.

Exploring your flexible restructuring finance options can also help you to get the funds you need at a lower interest rate, saving you money in the long run.

    Strategically invest your excess working capital

    If you have excess cash sitting in your business bank account, it’s virtually earning you zero interest. Australia’s interest rates are currently at record lows, and they’re likely to stay low until at least 2024. 

    You might like to consider investing those funds where you can get a decent return instead. If you don’t, the opportunity cost is the amount you could be earning on these funds that you’re missing out on by leaving them in a low-interest bank account.

    Carefully manage your inventory levels

    Being both understocked and overstocked can negatively affect your working capital. If you’re understocked, you’re missing out on sales.

    On the flip side, if you’re overstocked, you have too much of your working capital tied up in stock that won’t sell quickly. Those excess inventory funds could likely be used to generate a better return elsewhere.

    Carefully manage your accounts receivable

    It’s important to ensure that your customers pay you on time. If they don’t, your working capital will suffer. Think carefully about any credit terms you offer customers, and make sure that you have systems and processes in place to follow up with them to ensure on-time payment. 

    Invoice Finance allows you to keep your longer credit terms for your customers so they can pay when they’re ready, and you also have access to the funds from the unpaid invoices whenever you need to draw down from your line of credit.

    Take advantage of government financial assistance programs

    Both Federal and State governments have implemented a range of schemes to help businesses recover from the economic impact of COVID-19 restrictions. One of those is the SME Recovery Loan Scheme. This Scheme enables businesses with an annual turnover of less than $250 million to access partially government-guaranteed loans of up to $5 million.

    An SME Recovery Loan could be a great way to boost your working capital. Earlypay is a government-approved lender for the SME Loan Recovery Scheme.

      If you'd like to learn how Earlypay can help you boost your working capital to fund growth or keep on top of the day to day operations of your business, contact Earlypay’s helpful team today on 1300 760 205 or visit our sign-up form.

      If you'd like to learn how Earlypay's Invoice Finance & Equipment Finance can help you boost your working capital to fund growth or keep on top of day-to-day operations of your business, contact Earlypay's helpful team today on 1300 760 205, visit our sign-up form or contact [email protected].