For any organization to grow, having access to working capital is a necessity. Working capital is the money that a business uses to fund payroll, purchase inventory, and handle other expenses before they start collecting cash revenue. Today, there are a variety of different working capital solutions available to business owners.
The most affordable form of working capital available to businesses today is to use cash. If the business owner or the actual business has a lot of liquidity, it could be possible to fund working capital entirely without borrowing any money. For those that are looking to reduce their interest expense, this is often the best option. However, funding working capital entirely in cash can be a big upfront payment that could require you to raise equity, which could require you to give up part of your company.
Line of Credit
Another great option for working capital is to get a line of credit from a bank. When you get a line of credit from a bank, you will be able to borrow money to bridge working capital or buy inventory. In most situations, the bank will advance up to 80% of your total working capital needs to bridge the cash flow gap.
Extended Vendor Terms
If you are looking to improve your working capital position, another option to consider is to negotiate extended vendor terms. When you purchase inventory, you likely will have up to 30 days to make full payment to your vendor. While most businesses like to pay vendors as quickly as possible, you could improve your working capital position if you are able to get extended repayment terms. Even having your repayment terms extended to 60 or 90 days could improve your cash flow. Alternatively, you could also improve your working capital if you are able to collect faster from your customers.
Another popular form of working capital with businesses today is to use corporate credit cards. While credit cards are often frowned upon due to higher interest rates, those that are able to use them wisely could actually benefit. If you are able to pay off your balance at the end of each month, you will actually have no borrowing costs and will avoid the expenses that come with working capital loans. Also, you could take advantage of rewards that could provide you with free flights or cash back points.
When you are looking to improve your working capital position, there are a number of different options available to you. Since each of these options have different advantages and disadvantages, it is important to figure out which is right for your business. Ultimately, this will help to ensure your business remains as strong as possible.