COVID-19: 6 Working Capital Management Tips

The most crucial factor in running a business right now is working capital. With sales slowing down and stocks piling up, it is imperative to make sure that you have enough working capital to tide through this crisis, and that sales are steady.

 If you think you need to sustain on the current working capital for another 12 months, do whatever it takes to ensure that you do not run out of funds during the next 12 months. Let me discuss some tips to ensure that you stretch out your cash resources as long as possible.

6 Working Capital Management Tips

My first point is to Give discounts

If you think the recovery will take longer, ensure you have enough fast money in hand to last out the crisis.

Even if the recovery is quick, you will not lose anything by having cash on hand. A rupee today is worth more than a rupee one year down the line.

This is simple economics. So try to get in cash as quickly as possible. Give discounts if needed to ensure that the regular customer pays up immediately. Make money last as long as possible.

My second point is to Ask existing debtors to clear pending debts by offering a discount

If there are pending dues from big customers or corporate customers, offer them a discount to entice them to pay up immediately.

This will ensure that your list of debtors comes down drastically, thus increasing the immediate cash you have on hand.

My third point is Cash availability, which means the possibility of more loans.

Who do lenders give loans to? To those who have money to repay. Once you show that you have enough cash in hand, the bank or other lenders will be more willing to give you a loan.

This is called getting a loan by looking like you don’t need a loan. That’s the smart way to project your business cash flow. This means you can stock up with a loan to make sure your business runs longer.

You might find this strange, but during a downtrend, lenders want to give money to businesses that don’t need the money.

My fourth point is to Check your assumptions

A downturn usually allows you to take more liberties in terms of pricing, salaries, over-time, and even team sizes.

You are allowed to do things that you would typically not do. So take a look at your process, at your operations. Is there something that you would not normally do to cut costs, but can do now?

My fifth point is to Get Credit

You know that your supplies are in the same boat as you. In case some of them are willing to give you extended credit during this scenario, take it.

Ask for it if suppliers don’t come forward with the offer themselves. Many companies are saddled with stocks and will willingly give you extended credit to ensure that their shares are sold quickly.

This will give you some additional time to make your working capital last.

My sixth point is, Don’t forget these lessons

Most importantly, don’t forget these valuable lessons after the crisis is over. You will realize how much we take things for granted. Who knows, with these lessons in mind, you may be able to turn around even a loss-making business by cutting the right corners where needed.

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