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Capital ideas

The following are some actions you can take to manage your working capital:

Manage your debtors

Collections

  • Have a system for collecting from debtors that includes letters, scripts for phone calls, reminders to follow up etc
  • Be prompt in your follow up of customer payments

Request customer deposits

Invoices

  • Issue invoices promptly
  • Make sure invoices are accurate so they don’t give the customer a reason to delay payment

Delivery

  • The quicker the goods are delivered the quicker the invoice will be received by the customer

Discounts

  • Consider a discount for prompt settlement by your customer

Borrowings

  • Consider ‘factoring’ your customer invoices to speed up the collection process. Factoring is where a finance company pays you for your customer invoices and collects the payment on your behalf (there are a number of varying types of factoring)

Manage your stock

Level of stock

  • Reduce stock levels
  • Return slow moving items to suppliers
  • Selling off slow moving items
  • Set a reorder level of stock which is low (ensure you have it when your customer needs it but not before)

Shipping and handling

  • Have efficient processes from customer order to delivery so that stock leaves you as soon as possible after the customer order is received

Manage your creditors

Payments

  • Ordering stock at the start of a month if you receive 30 days from end of month terms from suppliers
  • Use the interest free period provided via a credit card to delay your payment

Terms

  • Obtain the maximum trading terms from your supplier
  • Talk to your supplier if you are unable to make payment on time
  • Payment Pay on the due date. Don’t pay early unless it is financially advantageous

Other working capital items

Borrowings

  • Obtain additional funding from your bank or credit institution to reduce creditors and pay over a longer period (using your debtors and stock as collateral)

Owner’s contribution

  • Owners can contribute additional capital to the business

Assets

  • Consider the sale of assets that may release cash into the business.
  • Consider a sale and lease back of an assets to release cash into a business

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