One of the biggest challenges for new and growing companies is managing their working capital. Businesses with slow paying customers can struggle to build enough working capital to build assets as the company grows. One method to help with this issue is through working capital financing. This financing gives you the cash you need to keep things moving while you wait for outstanding invoices to be paid. There are three different styles of working capital management, let’s look at them now:
- Conservative – This is the least risky method of capital management. Typically, you’ll have longer term loans with sometimes higher interest rates. It has the lowest liquidity risk, but also gives the lowest potential for funding rapid growth.
- Hedging – In this concept, the loan terms will nearly match when the asset is maturing. It requires meticulous handling and planning so there’s no lapse in payment in either direction. In this setup, short term loans will finance short term assets while longer term assets will utilize longer term loans. It takes more effort, but also offers the possibility of greater profitability.
- Aggressive – An aggressive strategy for utilizing working capital loans for your small business in Birmingham, AL, will give you the greatest opportunity for profitability. It also comes with the greatest risk. In this case, long-term funds will finance your permanent working capital and fixed assets while the short-term funds will finance temporary capital and any remaining permanent working capital.
Depending on where your business is in its growth cycle will impact which style of working capital management you choose to use. It’s always best to consult with experts to determine which method of working capital funding in Birmingham, AL, will work best for your business. You need to make sure you have enough liquid capital to keep your business moving while not entering a situation where you’re upside down and unable to pay off your loans when they are due.