Optimizing working capital: The key to liquidity, profitability and resilience

Effective working capital management is vital to the stability and growth of any business. By optimizing working capital, businesses can enjoy many significant benefits:

• Enhance liquidity: Ensure businesses have enough cash to pay bills on time, fulfill financial obligations and seize new business opportunities.
• Reduce capital costs: Reduce the need for external debt, helping to significantly save money on interest rates.
• Enhance resilience: Create a financial cushion to help businesses weather difficult economic times and ensure business continuity.
• Increased operational efficiency: Tight working capital management leads to better inventory control, improved collection efficiency and shorter order processing times, resulting in better overall operating performance.
• Increase business value: Businesses with optimized working capital are often valued more highly by investors and partners, as it shows financial stability and high profitability.

Working capital optimization strategy promotes corporate financial health

Working capital plays a crucial role in maintaining the financial health of a business, ensuring payment of short-term obligations and promoting sustainable growth. To optimize working capital, businesses can deploy many effective strategies, including:

• Effective inventory management: Evaluate optimal inventory levels to avoid devaluation or overstocking. Businesses can perform regular inventory counts, improve ordering processes and apply advanced inventory management systems.
• Favorable payment terms: Negotiate longer payment periods with suppliers to reduce cash flow pressure. Conversely, businesses can provide incentives to encourage customers to pay early, such as discounts or loyalty programs.
• Accelerate collections: Implement payment automation tools to process invoices faster. Provide customers with flexible payment options and closely monitor receivables to identify late payments and take timely action.
• Reduce capital expenditures: Thoroughly evaluate capital expenditure plans to identify projects most likely to generate returns. Only invest in projects that are essential and have the potential to improve operational efficiency or generate future revenue.
• Strategic debt management: Maintain strong relationships with banks and other financial institutions to ensure access to capital when needed. Explore alternative sources of financing, such as private placement bonds or trade credit, to diversify funding sources and reduce financial risk.

Prepare for 2024

2024 is set to be a tough test for businesses globally, with economic challenges awaiting them. The context of persistent economic instability, escalating inflation and fierce competition is expected to significantly deplete working capital, challenging the financial resilience of businesses.

At the threshold of this difficult period, businesses need to proactively act now to optimize the efficiency of working capital use, ensuring the ability to respond to unpredictable market fluctuations. Measures such as tight supply chain management, renegotiation of payment terms and increased financial discipline will play a key role in maintaining liquidity and access to capital.

In addition, businesses should consider diversifying their funding sources, exploring traditional alternatives to create a safety cushion for their cash resources. Combining these strategies with strategic vision and adaptability, businesses can overcome the challenges of 2024 and position themselves for long-term success.

Latest working capital optimization solution for businesses in 2024

Effective inventory management

•  Apply a periodic inventory system to accurately track inventory.
•  Use FIFO (first in, first out) or LIFO (last in, first out) tracking methods to optimize cost of goods sold.
•  Negotiate discount terms with suppliers to reduce inventory costs.

Optimize cash cycle

•  Quickly send invoices and follow up on collections.
•  Offer early payment discounts to encourage customers to pay promptly.
• Negotiate flexible payment terms with suppliers to extend payment cycles.

Debt control Strict receivables

• Monitor receivables closely and implement early collection measures for overdue debts.
• Use a third-party debt collection service to assist in collecting unpaid monies.
• Consider selling receivables to debt collection companies to transfer credit risk.

Manage liabilities effectively

•  Negotiate longer payment terms with suppliers when possible.
•  Use just-in-time payments to take advantage of discount terms.
•  Consider using dual credit to extend payment time for large payments

Optimize inventory turnover

•  Increase sales velocity by providing excellent customer service and effective marketing.
•  Focus on selling fast-moving products and eliminating stagnant products.
•  Negotiate faster shipping terms with suppliers.

Use external funding

• Consider financing options such as purchase credit, installment loans, and asset-based financing to supplement working capital.
•  Explore government or venture capital funding sources that may provide capital.

Comprehensive financial planning strategy

•  Forecast working capital needs accurately to avoid cash shortages or excesses.
•  Identify potential risks and have a mitigation plan to protect your financial health.
•  Monitor working capital performance regularly and adjust strategies as needed.

Conclude

In an increasingly uncertain economic climate, working capital optimization is more important than ever. By implementing effective strategies, businesses can increase liquidity, reduce costs, increase resilience and position themselves for success in 2024 and beyond. Always remember, “cash is king”, and businesses that manage their working capital well will be in a strong position to face upcoming challenges.

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Businesses can seek the support of tools to help manage debt closely Invoicing software - debt tracking and automatic debt control 3 in 1 by Bizzi. Specifically: 

Export electronic invoices 

✅ Issue electronic invoices that meet 100% operations 

✅ More than 100+ invoice templates according to the administrative needs of businesses

Track debt AUTOMATICALLY 

✅ Automatically track debt, update debt status in real time.

✅ Automatically send debt reminder emails when due according to the business's debt collection process.

✅ Automatically notify and create debt collection support for sales and accounting.

✅ Monitor the debt collection process of employees, track customer debt collection history.

AUTOMATIC debt control 

✅ Check debts and customer statements with corresponding invoices 

✅ Diverse multi-dimensional, transparent, accurate business report templates with instant data 

Besides, Bizzi Support businesses to access and expand capital sources through the Bizzi Financing capital connection platform. With this solution businesses can: 

✅ Connect a variety of financial partners to FULLY meet the additional capital needs of businesses.

✅ Diversify forms of financing, proactively choose appropriate loan products: working capital financing, invoice advance financing, payment capital financing for Vendors (Sellers).

✅ Proactively choose the right Funder.

✅ Save operating costs, competitive interest rates. Interest rate from only 0.7%/month.  

✅ Track and manage invoices, debts, limits and balances on one platform.

✅ Procedures - simple application, submit online 100%.

✅ Quick process, no mortgage account required, completed in 5 minutes, receive loan eligibility assessment results within 30 seconds. 

✅ Maximum disbursement rate 100% invoice.

✅ Bizzi connects capital support to the company's customers/agents to pay the company on time, helping the company increase sales.