Raising Working Capital


Your working capital balance is one of the surest indicators of the health of your company. Simply defined as your total current assets minus your total current liabilities, it indicates your ability to meet the day to day expenses of operating your business and to continue trading by meeting your necessary payments to creditors and suppliers.

The lesson is clear. If your working capital is perilously inadequate, you may need to raise sufficient finance to correct the shortage. The following are some of the options you may want to pursue with us here at ACF Direct:

Factoring

  • the time it takes to collect unpaid invoices – one example of your current assets – is clearly critical to a healthy working capital cycle;
  • the longer it takes to realise those assets, the greater your difficulty in meeting current liabilities – so disturbing your working capital balance;
  • factoring involves the sale of those uncollected invoices to a third party, who assumes responsibility for collection and pays you a percentage of their value (after the deduction of the factor’s commission);
  • the aim is to shorten your working capital cycle, effectively raising working capital funding;

Invoice discounting

  • invoice discounting works on a similar principle that allows you to realise the value of the current assets represented by unpaid invoices;
  • in this case, you are borrowing against the value of those invoices, the collection of which you retain responsibility – as far as your debtors are concerned, therefore, they may remain unaware of the arrangement you have made to raise additional working capital;

Credit control

  • emphasising once again the critical importance of managing your working capital cycle is thrown into stark relief through improved credit control measures – enhanced controls ensure the minimum lag between your raising invoices and your collection of the payments due;
  • improved credit control may be achieved by commissioning credit control specialists for the introduction of systems for the more efficient and faster collection of outstanding invoices and other debts;

Trade insurance

  • trade insurance – or trade credit insurance, as it is also known – safeguards lines of credit you have extended to customers and debtors by indemnifying you against the financial losses you suffer through non-payment;
  • insuring against bad debts in this way protects the revenue on which your working capital otherwise depends.

With our help here at ACF Direct, therefore, you might identify the solution which best suits your purposes for protecting and bolstering that critical working capital balance on which your ability to continue trading may depend.

Those business finance solutions might involve methods – such as factoring or invoice discounting –which provide an immediate boost to your working capital, or those which protect against potential losses by improving the credit control measures your enterprise keeps in place or by arranging trade credit insurance by way of indemnity against bad debts.

Contact us here.