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.
Working Capital Financing Solutions
Small business owners face many options when it comes to financing their businesses. Working capital financing involves improving cash flow to allow for business opportunities. Whether adopting a conservative, hedging, or aggressive working capital management strategy, your business requires injections of cash to keep expanding.
Invoice Factoring as Working Capital Financing
Invoice factoring services improve a company’s cash flow. This allows the business to grow with enough working capital to cover the daily costs of operation. Invoice factoring, also known as accounts receivable funding, does not require a high personal or business credit score, a long time in business, or personal collateral. Instead, factoring companies evaluate your clients’ credit history and judge approval decisions on that.
How can you get more working capital for your business? Invoice factoring offers a growing funding source, but sometimes you need more cash immediately. Combining factoring services with purchase order financing can give your business the available working capital it needs to take on large volumes of sales.
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Jeremy Thompson
December 20, 2017It’s interesting to learn that there is such a term called working capital that companies must fulfill if they plan to stick in the game. Additionally, it might prove to be quite a challenge for growing companies due to slow paying customers as you’ve mentioned. That is interesting to learn as I would never have known about this otherwise. I surely need to read and study more about the business industry before even dreaming of competing in it. Luckily, though for those who are struggling there are still some ways to approach the issue, such as with the help of a working capital management. Thanks!
Ian Varley
December 20, 2017Thanks Jeremy – we appreciate your comments!
FactorLoads
January 9, 2019I totally agree with what you said. I believe that it is very important that we choose the right financing for our business in order for it grow. I also think that getting an advice from the professional is definitely a great help to avoid future problems.
Jenna
January 31, 2019I think that it is essential to have a financing strategy for business working capital. These 3 strategies that you shared here is very helpful for business owners like me. Thanks for sharing this. This article is very comprehensive.
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Sandra Patterson
June 18, 2019I thought it was interesting what you said about a conservative method being generally the lowest risk but gives the lowest chance of funding rapid growth. My sister has been looking into capital financing for her business within the last week or so, but is unsure how to actually proceed with it. I think that she should look around for someone that can help her understand what is best for her business, as well as read this article!
Philip
July 12, 2019Great article.I also think that invoice factoring is a great financing solution for small businesses. Thanks for sharing this very informative article.
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Kelly
October 31, 2019Amazing! the article, Nice strategies.
Care
November 8, 2019I was very pleased to find this web-site. I wanted to thank you for your time for this wonderful read!! I definitely enjoying every little bit of it and I have you bookmarked to check out new stuff you blog post.
Ian Varley
November 8, 2019Thanks! We strive to put out content that is relevant to small business and small business owners. Let us know if there is a topic you would like us to cover!
Evelyn Wilson
December 10, 2019First, Capital is an essential thing for the finance business. Clients are always trying to manage their money according to the time duration. Som time payment goes due too late as we expect. As I am a working finance manager with a free invoice generator app – moon invoice, I found many unresponsible clients.
I this case we have to learn strategies like this. It’s really good to apply to be safe.
Ian Varley
December 11, 2019Thank you for your comment, Evelyn. You’re right. A lot of invoices can be paid out late because of cash flow and timing. Forward thinking and financing your working capital can help ensure everyone is paid when they are supposed to be!
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