Working capital finance

It happens time and again – your order book is healthy, customers love the product or service, and things could not be going better. Until, that is, you check your bank balance and see the cupboard is bare. With money tied up in stock and clients taking full advantage of credit terms or being slow to pay, it is suddenly impossible to pay salaries or purchase essential supplies to keep the business going. Take advantage of working capital finance to manage those dips in your cash flow and sustain business growth.

The best working capital finance option

There is no one best working capital finance option, in fact a lot depends on the type of business you run, how you collect payments and who your customers are. The tragedy is to maintain working capital through the year and doing this through external funding options is a simple matter. If your business was fundamentally flawed it might be different, but where it is simply a case of needing to maintain cash flow to keep the business running smoothly and profitably, lenders will be waiting with open arms and cheque books at the ready.

Working capital finance methods

The good news for borrowers is that there is an abundance of working capital finance options. From working capital loans to lines of credit – here are a few of the most popular ways to give your company a quick cash injection when it needs it:

• Bank overdraft – your bank will provide an agreed safety net by which you can go into the red, and the fees or interest charged are usually low. It sounds like the obvious solution, but there are a couple of stumbling blocks. One is that in recent years, banks have been less willing to offer overdraft facilities on business accounts. The other is that even if they do, it is typically a relatively small amount.
• Invoice financing – this is a great way to smooth out the peaks and troughs of cash flow. Invoice finance can help if money is tied up in outstanding invoices. The lender will give you access to a proportion of the money owed to you in advance, and when your customer pays you get the rest of the money minus a small fee.
• Revolving credit facility – most commonly compared to a bank overdraft whereby you are given a credit limit that you can dip in and out of whenever you need. The advantage here is that you only pay for what you use and there are no fixed monthly repayments. It is a valuable facility to have at the ready, just in case you face a difficult month.
• Business loan – probably the most popular way to borrow to help with working capital. A lender will give you a set amount of money to be repaid monthly over a few months up to a few years.