Working capital is the backbone of any business, so learning how to create more capital in your company is necessary for success.
It’s basically the cash you need to operate. Without enough working capital, you could lose your flexibility and credibility with financial institutions, suppliers and customers. More working capital, requires the accounting software to balance the capital and its calculations.
What do you do if you lack working capital to fund your day to day efforts?
As a freelancer or small business with a team of employee, the chances are that most of your clients have you working on small projects with quick turnaround times.
If you are in a situation where you are in need of more capital for business, here are the ways to get it.
1. Invest in solutions to speed up the collection process
Working capital shortages often arise due to delays in payments from clients. These days will lengthen your working capital cycle.
Your goal is to reduce that cycle. One way you can do this is by investing in solutions and strategies to speed up the collection process:
- Conduct credit checks with clients before so that you know whether they can pay on time
- Improve your invoicing procedures by investing in tools that help you get paid faster. Automate manual process through business accounting software.
- Track collection time with clients so that you know which clients are the slow players.
2. Find a solution that allows you to request an upfront deposit
There’s nothing more frustrating than a project coming to a halt due to money shortage. Asking for an upfront deposit gives you working capital to cover costs for the duration of the project. You can request deposits via email and have clients pay it to your bank account or you can use accounting software that lets you ask for a deposit in the invoice and have the client pay it immediately.
3. Small business administration loans
Small business administration loans are the loans that the small business administration guarantees. Instead of offering these loans the small business administration reduces the risks for the bank through a guarantee.These loans are ideal for long-term working capital requirements.
4. Invoice financing
You should not confuse invoice financing with traditional factoring. With conventional factoring, you enter into long-term agreements.
However, with invoicing financing, you sell unpaid invoices to a third party and get the cash immediately. You pay interest against the invoice value with interest rates.
crowdfunding is ideal if you are a startup because you can get funding even if you have no financial record. You don’t pay interest rates and aren’t subject to a credit check.
You raise money from a large number of people, through any platform.
You have a funding target you need to reach and you don’t get the funding if you don’t reach the target.
6. Get external advice
It’s not always easy for entrepreneurs to see how they can improve their cash flow, so I recommend that business owners seek outside help. For sure accounting is a big deal in the business startup, for that there are various online accounting software available in the market.
A consultant will typically help entrepreneurs do a thorough assessment and look at key areas such as their sales cycle, credit terms for suppliers and customers. They can also find areas of the business where there is room to improve and find ways to generate more cash internally.
Working capital is very essential for funding your day to day operations and for large projects. You will have to struggle without it.
That is why your goal should always be to maintain positive working capital. Where you have a shortage it may be time to look for ways to increase it.
How you decide to get working capital is up to you, but you should always remain cautious because some companies may take you for a ride with high fees.