Since the economic downturn of 2008, maintaining net working capital has

become diffi cult for many mid-market companies. While it does not adversely

impact operating profi ts, or earnings, your company’s working capital position

can reveal a considerable amount about your organization’s fi nancial condition.

The more working capital a fi rm has on hand, the greater is its capacity to

manage through near-term fi nancial stresses.

Whether you provide a service, make a product, or sell direct-to-consumer

products, you have a value chain. A value chain generally includes all of the

activities that a company must perform to deliver a product or service to

market.

A thorough analysis of your company’s value chain can uncover opportunities

to optimize your working capital position. Optimizing the management of

these cycles can be a quick way to enhance your on-hand cash positioning.

Institutionalizing that process across your value chain over an extended

period of time can make a dramatic improvement.

A careful examination of your working capital needs can help you to

appropriately plan for unexpected fi nancial diffi culties, because even a

company with healthy fi xed assets can quickly fi nd itself struggling if it is

unable to meets its monthly liquidity needs.

Most companies require short-term working capital at some point in their

operations. Here are some of the most common methods to optimize

working capital.

7 Ways to Improve Your Business’ Working Capital Position…

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Vendor Reduction:Centralize/consolidate purchasing to deal with fewer vendors and negotiate better payments

terms (to pay when or after you are paid by your customer). It is a common best practice of larger

companies to consolidate the bulk of their orders with a few primary vendors, and to keep a few as

alternative resources.

Account Receivables Financing: With this method, your fi nancing company purchases your accounts receivables and assumes the

risk of your customer’s inability to pay. Approval terms are based on the quality of your customer’s

credit, not your credit or business history. The fi nancing does not show up on your balance sheet as

debt, and it provides a line of credit based on sales, not your company’s net worth.

Accounts Receivable Optimization:Reduce the accounts receivable collections cycle—the amount of time it takes to get cash. The

shorter the cycle, the sooner you get cash in hand.

Reduce After-Sales Inventory:If you are buying services, you can ask your vendor to provide after sales services closer to the

actual date you need them. This minimizes your inventory costs and extends your working capital.

If you provide after sales services, try to get customers on maintenance contracts to ensure regular

and advance cash fl ow ahead of you incurring the expense

Equipment Leasing:Leasing equipment via fi nance companies, as opposed to purchasing the equipment outright,

preserves working capital for other purposes. The lease payments can often be tailored to budget

levels or revenue streams.

Working Capital Loans:Working capital loans provide an infl ux of capital to help businesses jumpstart growth, and improve

cash fl ow to meet operational expenses (i.e. utilities, rent, payroll, etc.). These short term loans can

also serve as a great way to cover unexpected losses.

Lines of Credit:Many companies use lines of credit to take their business to the next level. A line of credit enables

companies to improve their cash fl ow and restructure their debt according to their current and

future requirements.

Working capital is important, and more often than not undermanaged . Improving its performance,

in addition to sales focus and expense management, can generate cash to fund value-creating

opportunities, and reveal insights that improve other aspects of business performance.

1. http://www.mckinsey.com/insights/corporate_fi nance/uncovering_cash_and_insights_from_working_capital 2. http://beginnersinvest.about.com/od/analyzingabalancesheet/a/working-capital.htm3. http://www.entrepreneur.com/article/219404. http://treasurycafe.blogspot.com/2012/02/working-capital-fi nance-and-inventory.html

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