8 Proven Ways to Improve Working Capital Management Today

This may require you to outsource a strong collection team, which could mean giving up a degree of control and visibility. You will be able to track cash inflows and outflows with ease and your outsourced team can provide your customers with a digital platform for invoices and payments. However, you’ll become more dependent on them as you no longer control how they handle your accounts processes. While manual management can add cause to delays in getting paid, automation saves money in the long run and reflects up-to-date business financing processes in your business.

It is advisable to invest in digitizing your inventory management to help you optimize your inventory by tracking orders, deliveries, and sales. It may be expensive, but it can increase business efficiency in the long run. Digitized inventory management can minimize losses and business interruptions through an effective warehouse organization. Historically viewed as a pure back-office function, accounts payable is not known for taking center stage when businesses look to grow or build competitive advantage. But today accounts payable is often perceived as the spend management knowledge hub, the function that controls much of business-critical data that impacts the CFO agenda. Consider the experience of one North American company, where executives pushed inventory managers to reduce working capital.


By eliminating such expenses, you will have more liquidity for working capital. When your company is facing a cash flow crunch, this relationship will go a long way in receiving some leniency. Working capital improvement starts at the point when a prospective customer applies for credit. You should investigate all credit requests of any size in detail, so that only creditworthy customers are granted credit. This can involve a review of an applicant’s credit report, calling its trade references, and examining its financial statements.

  • By integrating automation in the AP department, businesses can improve visibility over outstanding bills.
  • This process entails ordering inventory as needed for production and customer sales instead of stocking up before.
  • A good working capital ratio is typically between 1.5 and 2, meaning you have enough capital on-hand to cover all of your short-term expenses plus some.
  • Managers at one software company, for example, started measuring the frequency of invoicing in each country.

In the absence of understanding and conviction, some of the bad habits that a program seeks to expunge could quickly return. There are lots of moving parts in working capital management, which means there are countless ways of adapting one to suit specific business needs. These six strategies can help businesses manage their working capital more effectively, whatever their overall objective is. On the other hand, a strong working capital position can help companies achieve specific business objectives and invest in future growth. The working capital strategy you choose – and how fine-tuned it is to meet your business objectives – can have a major impact on overall operational success. You may also identify bottlenecks that can be easily tended to and resolved, further increasing your access to working capital and strengthening your company’s cash position, resulting in a more favorable balance sheet.

Align cost outflows with customer payments.

Explore how we have helped clients enhance their processes through broad measures and the approach we take to help them manage cash flow. You may also want to examine your office and business trip expenses if you’re looking for ways how to improve working capital. Small amounts of non-essential cash spending could instead be used to further fuel your working capital and growth.

Turn your outstanding invoices into cash

In fact, working capital is one of the main factors used to assess whether or not a company is a wise investment or not. Generally speaking, the higher the ratio, the greater a business’ means to expand its operations. If the ratio is declining, however, it’s vital that you find out why and act to remedy it. In this post, we’ll define working capital ratio, explain why it’s so important and what steps you can take tax credit definition to improve it and help your business thrive. Working capital is one of the most fundamental management tools at a business’ disposal and it can signal either great prosperity or imminent decline for a company. With our Accounts Receivable Automation software in place, you’ll have greater visibility into your invoicing and collection efforts and the flexibility to share that data throughout your entire enterprise.

Meet Debt Obligations

When carriers are financially secure, they are better equipped to provide reliable and efficient services, leading to mutual growth and enhanced efficiency in the supply chain. GoCardless customers can also take advantage of our Success+ solution which uses payment intelligence to manage and reduce payment failures. This can drastically improve cash flow and lead to big improvements in a business’s working capital ratio. Numerous ways exist to free up net working capital, including strategies around accounts receivable, accounts payable, inventory and cash management. Finally, working-capital performance rarely improves uniformly across every business unit and region, or across inventory, receivables, and payables. Performance dashboards can allow managers to review a significant degree of detail, identify pockets of success, and quickly address problem areas.

Explore our insights on how to improve working capital and liquidity

Use real-time updates to instantly resolve disputes with customers and vendors, manage inventory and analyze fixed and variable costs. Properly managing the invoicing process is another way to improve liquidity. Paying invoices only when they are due will improve cash flow but may have the disadvantage of losing early payment discounts.

Instead, she started to push for advantageous receivable terms to ensure a faster time to cash. If your company is facing challenges with cash flow management and working capital, HighRadius’ cash forecasting solution can help. Schedule a demo today to learn more about how this powerful tool can help your business achieve its financial goals and maintain its financial health. Don’t miss out on the opportunity to improve your working capital management and achieve long-term success.

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