Tips to Manage Working Capital for Manufacturing Business Growth

Tips to Manage Working Capital for Manufacturing Business Growth

When it comes to the long-term financial health of your manufacturing business, managing working capital is a crucial aspect. As far as the current fiscal landscape is concerned, proper management of working capital is instrumental in sustaining a healthy cash flow. Often, those in manufacturing business also apply for business loan to cater to the financial requirements. The following are 5 tips to manage working capital effectively for your venture:

  1. Pay suppliers on time- a disciplined payment to suppliers and vendors aids in fostering strong relationships with them. By keeping suppliers happy, you can bag large concessions on bulk buying and recurring orders. Besides, it also maximizes the credit period and saves money. If you pay your suppliers on time, they will be more flexible when it comes to prices. It will also help you build your brand value in the market.
  2. Constructive inventory management- this is one of the fundamental pillars of effective management of working capital. However, do keep in mind that while it is crucial to maintain optimum levels of inventory, over and under maintenance can have an adverse impact on your working capital. Inventory levels beyond demand lead to cash outflow for maintaining them. On the other hand, under inventory can make you suffer from a shortage in sales, which in turn affects your revenues. Thus, as a businessperson, it is imperative to have periodic checks of your inventory levels to address issues of overstock and understock.
  3. Have an efficient collection system- make sure you send out invoices as soon as possible to cut delays in payment. Deploy technology for electronic delivery of invoices to bolster the billing and collection processes. It is advisable to always send invoices to your customer as soon as you sell your goods and services, instead of waiting until the end of the month. The invoices should be accurate avoid payment delays. You can also consider sending periodical reminders to your customers regarding payment. It is a good idea to follow up on a regular basis to make sure you receive your payments in a timely manner.
  4. Choose Flexi Business Loans- These business loan for manufacturers can aid you in the prudent management of your working capital by allowing you access to immediate credit. However, before you avail these loans, make sure you are well-informed about the business loan interest rate. These loans help you in the following ways:
  • Balance credit crunch due to delay of payments
  • Purchasing of new equipment
  • Expansion of funds
  • Buying fresh stock
  • Taking care of day-to-day working capital needs

Here are some tips to help you plan and execute your business expansion successfully.

  1. Finance

Your ambitious growth plans rely on how well you can mobilise funds to meet your capital needs at various stages of your expansion drive. As the government is taking steps to boost manufacturing in the country under the flagship Make in India initiative, a number of incentives have been announced to facilitate employment generation and value creation.

As manufacturing is technology-intensive, a constant flow of capital is essential for long-term viability and innovation. This is especially true for small and medium enterprises that serve niche markets. To facilitate the growth of the sector, a number of lenders have introduced business loans for manufacturers to meet working capital as well as expansion needs.

You will need to take a close look at the loans on offer and choose the one that best suits your needs in terms of interest rate and repayment schedule. Business loan at interest rates that are competitive can help you augment your peak production capacity.

To cater for such situations, you can now take advantage of Flexi Loans which allow you to withdraw funds as needed and pay interest only the amount utilised. This allows you to meet critical day-to-day business expenses, match production to demand and manage inventory effectively.

Bajaj Finserv, for example, offers low-interest business loans for manufacturers and a host of other financial products to suit every business need. To help you save time, it offers speedy loan approval and disbursement. Additionally, it also provides pre-approved offers on a host of financial products. Simply provide a few, basic details and check out your pre-approved offer.

  1. Partnerships

Innovation and growth require a strong R&D focus. As manufacturers worldwide look to cut costs and improve efficiency, technology is emerging as a key enabler in the product-process matrix. As small manufacturers seek new export markets, they find themselves competing with large corporations with access to state-of-the-art production and supply chain capabilities.

To venture into newer areas of specialisation, you will need to look at opportunities for collaboration with R&D institutions like the Indian Institutes of Technology (IITs). Business accelerator initiatives promoted by institutions such as IIT Madras and more recently, IIT Bombay, offer Indian companies access to modern prototyping and testing facilities for developing new products.

Similarly, if you are a niche supplier of spare parts or high-technology items, you can add value as a Tier-II or Tier-III supplier to large multinational corporations that are looking for cheaper ways to source components for a range of integrated hi-tech products. Develop a reputation for excellence and benchmark your product or processes against the best in the world.

Your business can thus leverage the advanced intellectual and technology potential of Indian academic and research institutions to compete locally and internationally.

  1. Efficiency and Cost Control

Efficient project management and quality control measures can reduce the overall cost of manufacturing significantly over a period of time. Unlike a large manufacturing enterprise that controls multiple units spread across a large geographical area, small businesses can control their production processes more efficiently.

Methodologies like Six Sigma and Lean Manufacturing help lower costs, identify defects and improve turnaround times. They have also been credited with improving labour utilisation and reducing equipment downtimes.

Manufacturers around the world have used them to execute complex design and manufacturing contracts with predictability and precision. High-technology sectors such as shipbuilding and aerospace have especially benefited by using the business loan for manufacturers.

Small manufacturers can leverage quality control philosophies like Six Sigma to become competitive and cost-efficient. The proven concepts of defining, measuring and analysing business outcomes to drive product or process improvements is changing the way small businesses are contributing to the growth of the global economy.

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