To improve the financial health of a business and its operational success, proper management of the working capital is essential. You can tell that a business has good management through its ability to use working capital management in order to maintain a fair balance between its growth, profitability, and also its liquidity.
What is Working Capital?
Running a business needs working capital, whether using internal funds or through Receivables Financing. But what is working capital and how is it important to a business? Working capital is what the business use in its day-to-day trading. This is calculated as the difference between its current assets and the current liabilities or the company’s debts.
7 Importance Of Working Capital Management
The working capital is serving as the metric in order to determine how efficient a company is and how efficiently stable it is. This is a daily necessity of a business and here are it’s important that you need to take note of:
- Business Value. Businesses that have more efficient working capital management are expected to generate more cash flows. This in return will result in higher enterprise value and business valuation.
- Continuous Production. If you are paying your suppliers on time, this can have a huge benefit on the regular flow of the raw materials that you need for your production team. This way, you are ensured that the production process will remain uninterrupted and your clients will receive their products and services on time.
- Competitive Advantage. For companies with a very efficient supply chain, they can sell their products even at discounted rate compared to companies with inefficient sourcing of supplies.
- Financing Terms. Always remember that businesses that have great relationships with their trade partners and those who are paying their suppliers in a timely manner will greatly benefit from better financing terms. This can include discount paments from their suppliers as well as banking partners.
- In a working capital, businesses need a huge amount of cash. This means that if the company is managing it efficiently, they could benefit from the additional liquidity. They would become less independent on their external financing.
- Research studies have proven that proper management of the account payables and receivables are very important factors for the profitability of small businesses.
- Companies that have a lower working capital usually have a higher return on capital. This means that shareholders are the ones who will benefit much from the returns of every amount that they invested with the business.
Boost Your Working Capital With Quipital
When it comes to trade finance platforms, Quipital is one of the most trusted names of SMEs all across the Greater China Region. The company’s vision is for SMEs to have quick access to quality and affordable capitals. This way, entrepreneurs can only focus on what they need to do – growing a business. With Quipital’s finance solutions, there’s no more need to worry about efficient cash flow.
Quipital aims to help every SME business to establish affordable working capital from their professional investors through the online platform. With Quipital, traditional trading SMEs are not the only ones who can benefit from their business solutions. In fact, even e-commerce businesses can also raise their trade finance quality through this finance trade platform.