Working Capital Management in a post-Covid world

Business | Know More 25 November 2021

Is your company struggling hard to maintain its cash flow in this period of economic uncertainty? Then you need to be vigilant about your working capital and properly manage it so that your day-to-day transaction runs smooth, and liquidity is optimum.

Working Capital Management in a post-Covid world

What is meant by–Working Capital and its Management?

Working Capital in its basic sense is the difference between the company’s Current Assets (which include cash in hand, payments expected, raw materials in stock & finished products) and its Current Liabilities(company’s debts and account payables). It denotes the liquidity scenario of the company to manage its day-to-day expenses and it tells about the efficiency and the financial health of the company.

Working Capital Management is the dedicated task of managing the working capital to ensures that all the day-to-day transactions of the company run smoothly.

How Working Capital has been affected in the post-covid world?

Pandemic has adversely affected the financial transactions of the companies; the supply chain system has been disrupted, and the Client is delaying the payments. In these kinds of uncertain circumstances, companies are trying to slash the pay of employees, delay the payment of their supplies, and trying to cut down variable expenses. All these factors are posing a threat to working capital management and creating room for companies to look for capital financing options.

As a thoughtful business person, you must be thinking about the measures which you need to follow for managing your working capital in these financially stressed times. Read ahead to know about all the measures you need to follow.

Working Capital Management strategies to be followed for smooth business transactions in the post-covid world.

  • Inventory Overhaul

    In the post-covid phase, the consumer demand has been variable, supply and logistic services are less efficient, which means all these factors call for proper inventory management. An appropriate business strategy in these uncertain times would be to maintain the balance between the just-in-time and just-in-case approaches for inventory management so that you do not spend more on idle inventory at the same time you should maintain sufficient stock to evade potential losses.

    Maintaining high inventory involves additional warehousing, insurance, and transportation costs, which eat up the working capital, so your company should resort to judicious and real-time demand forecasting strategies based on updated statistics.

  • Business Process Restructuring

    In the post-covid world, the delay in supply chain functions, variable government regulations, and the liquidity requirements of all organizational all these factors have jointly resulted in the delay in client payments. So, you need to expedite your pending payments to maintain optimum working capital and to manage your outflow.

    In this age of digital revolution, now the companies are resorting to electronic invoicing systems to help in streamlined payments and keep to the digital track of the receivables. Similar processes should be incorporated in various functions to properly manage the cash flow.

  • Deploy Robust Forecasting Framework

    Since the market forces are dynamic in the aftermath of covid, you need to have a robust forecasting system to efficiently predict the unplanned cash requirements and other variable short-term & long-term capital financing requirements.

    If the forecasting system is realistic, then you can accurately predict your receivables and working capital requirements. Capital management should be optimal, neither too low (which affects the company’s operations) nor too high( which reduces the chances of earning returns on unused funds).

  • Keep doors open for Additional credit sources like capital financing and working capital loans.

    Businesses need to keep a track of the market scenario, and if the situation arises door should be kept open for additional credit sources. At any instant, sufficient cash flow should be maintained so that the vital functions are not hampered. You can go for various capital financing options like a working capital loan or capital loan based on the requirement.

  • Extending a helping hand to your business drivers.

    The levels of uncertainty are distributed among the business based on their financial capabilities, due to which the small businesses are more affected by the changing market conditions. So it’s the moral obligation of strong businesses to support their Supply chain partners by facilitating timely payments and providing them continuous supply orders. If in case these small companies are in a cash crunch, they should also take the support of capital financing services.

Looking Ahead

Challenging situations not only pose dangers, but they give a chance to companies to showcase their strength and come up stronger with flying colours. This post-covid situation also provides them with an opportunity to think out of the box and to come up with new dynamic business models and more efficient supply chain functions.

For more insights on working capital loans there are various Finance companies you can refer to, and the most recommended one presently is Piramal Capital & Housing Finance (PCHF).

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