Working Capital in the Supply Chain
Working capital is a reflection of a company’s short term financial health. Optimizing working capital in the supply chain involves evaluating assets versus liabilities and further tailoring operations to establish a balance between both costs and services. Assets include working capital inventory and working capital accounts receivable whereas liabilities cover accounts payable working capital.
Working capital sets the stage for supply chain performance. Typically, costs are locked in at the very beginning when factoring in expenses such as inventory, distribution and supplier networks, manufacturing, etc. Due to this common practice, companies experiencing early stages of growth tend to resort to small business capital funding as a means to manage accounts receivable balances and inventory.
Companies experiencing early stages of growth or exponential customer sales most commonly resort to small business capital funding as a means to manage accounts receivable balances and inventory. Depending on a company's working capital cycle, a working capital facility is important to utilize until accounts receivable and inventory turn into cash.
Sources of working capital finance vary and are commonly broken down into two types of analyses; long-term and short-term sources. Analysts frequently refer to short-term debt in a negative light as it makes a company more vulnerable financially. This is only the case in traditional financing solutions, however. In this case, lines of credit are used as a means of small business working capital financing and therefore, convey the company experienced an imbalance of revenue and/or cash flow and sought out a solution for the foreseeable future.
On the contrary, long-term sources of working capital finance are generally accounted for as a capital expense. Essentially, a capital expense is a long-term investment in the company to solidify the growth and success of the brand for years to come.
There are ways to leverage working capital for a company’s benefit to obtain liquidity at an accelerated rate beyond the average sale and transaction cycle. Working capital corporate finance is commonplace, presenting available services and lines of credit to companies seeking additional funding to ignite operations by temporarily trading assets for cash flow among other working capital services options.
Successful business leaders strategize business finance working capital by assessing how their assets are truly profitable to the company’s operations. Assessing costs and adding working capital can be significantly beneficial. With the availability of capital, flexibility in operations, and breathing room in the supply chain, optimizing working capital is an excellent tool for growth opportunities.