5 Ways to Improve Your Business Working Capital

Working capital is the fuel that keeps your business running. It's the difference between your current assets (cash, inventory, accounts receivable) and your current liabilities (accounts payable, short-term debt). Positive working capital means you can pay your bills and invest in growth. Negative working capital means trouble.

Here are 5 proven strategies to improve your liquidity position immediately:

1. Shorten Receivables Cycles

If your customers take 60 days to pay but your suppliers demand payment in 30, you have a cash flow gap. Tighten your credit terms. Offer small discounts (e.g., 2% off) for early payment. Use automated invoicing reminders to ensure bills are paid on time.

2. Negotiate Better Vendor Terms

On the flip side, try to extend the time you have to pay your suppliers. Negotiating terms from Net-30 to Net-45 or Net-60 allows you to hold onto your cash longer, effectively using your suppliers as a source of interest-free financing.

3. Manage Inventory Efficiently

Inventory is cash sitting on a shelf. Avoid overstocking items that don't sell quickly. Use Just-In-Time (JIT) inventory practices where possible to reduce carrying costs and free up cash for other uses.

4. Use Invoice Factoring

If you have large outstanding invoices from reliable clients, consider factoring. A factoring company will advance you 80-90% of the invoice value immediately, giving you instant cash flow rather than waiting for the customer to pay.

5. Secure a Line of Credit Before You Need It

The best time to apply for a line of credit is when your business is healthy. Having an untapped line of credit acts as an insurance policy against unexpected expenses or slow months.

By actively managing these levers, you can improve your working capital position, reduce financial stress, and position your business for sustainable growth. Need help? PMF LA is here to support you.