A successful business always handles their working capital needs in the best possible manner. It requires you to develop a business-specific working capital formula for your organization.
One of the key aspects of your business is how you address your working capital needs. The supply of appropriate working capital makes it easier to support your business expenses and ongoing business growth.
Therefore, you need a well considerate and well-planned approach in creating and managing working capital. Here come the key points in that regard.
Discuss the best transaction terms with your vendors and clients
Business success is all about managing the interest of your vendors and clients. The best working capital formula is that you should discuss the best transaction terms with your suppliers and customers. Ideally, you should try to minimize the credit terms with your customers and try to get the maximum credit span from your suppliers. It will help you to source your working resources while optimizing the cash inflow, thereby optimizing your working capital. Research suggests, the most successful businesses have adopted this policy, and they are getting the best results from this policy. Thus, there are all reasons to stick to this policy.
Escape fines and penalties
One of the best ways to manage working capital is to minimize unproductive expenses. Payable fines and penalties constitute one of the major heads in this regard. You often need to pay late payment fees for paying government dues late. Likewise, your vendors are likely to offer you some rebate if you pay their bills on time. You should always manage these datelines in the right manner that will help you to escape the instances of paying unproductive expenses, as well as earning some significant savings through rebates. By paying these payments on time, you not only escape unproductive expenses, but you improve your goodwill and credit history as well. These improvements will help you to get hassle-free access to business finances and loans to support your higher working capital needs.
Allow discounts and rebates to customers on timely payment
Delay in receiving accounts receivable and bad debts eat away a major portion of your revenues. It, in turn, disturbs the cash flow and the availability of working capital. Therefore, your effort should be to push your customers to pay your bills on time. One of the best tricks to play in this regard is to incentivize them by offering concessions and rebates in this regard. Research exhibits that by getting such saving opportunities, customers feel like making timely payments. This way, you can even minimize the chances of bad debts. Thus, you can retain the appropriate cash flow, producing adequate working capital.
You must look for Tax rebates
Comparison between the tax systems and the applicable rates for business taxes in India with the rest of the world, Indian entrepreneurs are paying business taxes at a much higher rate. Though you cannot escape these expenses completely, you can certainly take advantage of the tax rebates. The concerned authority in India keeps offering various discounts in this regard from time to time. The moment you explore some favourable schemes, you should react promptly to such offers. This way, you will not only reduce your business expenses, but you can improve your business reputation. Again, it will help you to get working capital loans easily in subsequent times.
- Consider automating the business process to the maximum extent that will help you to reduce the perennial expenses. It is one of the best ways to improve cash flows and reduce working capital requirements.
- One of the most crucial approaches to reduce debt serving expenses to the extent possible. It is one time tested trick that will never fail to produce the desired outcome.
Managing the interests of your vendors and clients is crucial to your business’s success. The greatest working capital formula is to talk to your suppliers and customers about the optimum transaction conditions. Ideally, you should aim to keep credit terms with your consumers to a minimum and obtain the longest credit period possible from your suppliers. It will assist you in locating working resources while also maximising cash inflow, allowing you to maximise your working capital. According to research, the most successful organisations have adopted this policy and are reaping the greatest benefits from it. As a result, there are numerous reasons to adhere to this policy.
When comparing the tax systems and applicable rates for business taxes in India and the rest of the globe, Indian entrepreneurs pay a substantially higher rate of business taxes. Though you won’t be able to totally avoid these costs, you can surely benefit from tax breaks. From time to time, the appropriate body in India offers various discounts in this regard. When you find some good deals, you should take advantage of them right away. This manner, not only will you save money, but you will also boost your company’s reputation. It will also make it easier for you to obtain working capital loans in the future.