Everything You Should Know About Net Working Capital

Author : louisrolen
Publish Date : 2021-02-25 12:27:23
Everything You Should Know About Net Working Capital

Every business organization has a few assets and a few liabilities. The organizations utilize the available cash to meet their general requirements of buying the raw products or managing the supplies. The net working capital of the organization highlights the strengths and the position of the organization in terms of economy and finances.

What is Net Working Capital?

The difference between the current assets and current liabilities of any business organization denotes the net working capital. It holds significant importance for any organization as it highlights the ability and position of the organization to meet the current expenses without depending on the assets.

Components of Net Working Capital

The net working capital consists of the following crucial components:

  • Cash management
  • Inventory management
  • Receivables management
  • Payable account management

Keep scrolling down this article in detail to explore everything you should know about net working capital.

Top 7 Tips to Increase Your Business Net Working Capital

The net working capital helps the authorities calculate the available working capital they can use. The lower the working capital, the riskier the situation is. If it keeps decreasing, it can lead the organization to issues like bankruptcy. Therefore, it is crucial for organizations in competitive markets like the United Arab Emirates to grow and increase their net working capital

Here are the top tips you can easily follow to the net working capital of your business or organization.

1. Sell Your Long Term Assets

The first tip to increase the net working capital of your business organization is to sell your long-term assets. It can include land, building, plant, equipment or machinery etc., which are not directly being used. Selling these assets can provide cash to the organization, which can also improve the financial situation. The business organization relies on the skills and expertise of the best accounting firms in Dubai to review the overall situation and make such important decisions.

2. Impose Thorough Credit Checks

Failure to recover the accounts receivable on time negatively impacts the working capital of the organization. Therefore, it is critical to impose thorough credit checks on the customers before offering them any product or service. It is an important step to ensure the smooth growth of the net working capital of the organization.

3. Manage Your Inventory Turnover

Most of the organizations keep filling up their inventories every month even if they do not get empty by the end of the month. In such a scenario, you need to tackle the situation wisely. You need to manage your inventory turnover by only restocking the items, products that are in demand. You need to prioritize selling the exciting stock and utilize your working capital carefully.

4. Collect Your Outstanding Invoices

Watching the outstanding invoices of the business organization is another critical step towards growing its working capital. This is where the skills and expertise of the trained accountant come to the rescue of the organizations and help them track as well as recover the invoices on time. Clearing invoices on time is important to manage the cash flow and not fall short on capital.

5. Lease Your Equipment

One of the best ways to grow the net working capital of your business organization is to lease your equipment. The equipment is an asset of the organization; however, it will not offer any benefit if it is not in use. It might even consume extra capital in terms of maintenance. You can lease it to earn a little benefit and cash that you can eventually use to manage routine expenses.

6. Refinance Short Term Debts

Organizations often take loans to meet their needs. If your business has short-term debts that need to be paid in the time period of one year or less, you can refinance these debts. Lower the amount that you pay to the authorities to extend the time of debt clearance. By doing so, you can set aside a little capital to meet your existing needs and enjoy a little boost in net working capital.

7. Utilize Updated Financial Information

Lastly, the most crucial tip to increase the net working capital of your business organization is to utilize the updated financial information. Keep a close watch on your financial information and check the ratios to make your decision wisely. You will be able to control your expenses according to the available capital. You can also hire the service of the best accounting firms in Dubai to better manage your finances and keep you updated to make wise business decisions.

Watch your net working capital with the help of experts!

If you are new to the business world or are too busy to check the little details, you might face issues in managing your working capital. Instead of earning loss due to trivial mistakes, it is much better to seek the support of professionals. So, get in touch with trained accounts to better manage and grow your net working capital.

Category : world



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