Working Capital is a key indicator of a company’s short-term financial health as it shows the operating liquidity available in the company. Working Capital is essentially the cash a business needs to run its day to day operations and procure raw material to be able to deliver its products or services to a client.
If a company is looking to expand and increase production, generally the working capital requirements will also increase. This is especially the case with exporters, as typically it takes exporters longer to get paid from their customers. With more and more foreign buyers asking for credit terms on invoice payments, exporters can feel a greater strain on their working capital.
This can potentially limit the growth of exporters, as they will be unable to serve larger orders or work with new customers. As without adequate working capital they will not be able to procure the raw material or afford the additional overheads. Thus working capital management is key for exporters, and we summarize some of the steps they can take to do so.
To implement effective working capital management, exporters need to first understand the root causes of the problems that tie up cash. This can be observed during the operating cycle in which the company is able to convert its raw materials/inventory to cash in the form of sales.
It is important to monitor the financial statements and identify average working capital requirements, to derive patterns in the gap between incoming order and eventual payment for the order. This can be done by benchmarking the working capital numbers of the company with that of the competitors, industry and the country to create standards and compare.
One strategy should be to free tied-up cash and to decrease the gap between receiving orders and receiving payments. An exporter can only make the production and shipping processes quicker, and not the period it waits for payment from customer, as it needs to offer flexible payment terms to its buyers to have more market share. To do so, the business needs to make the system of several components more efficient, including, accounts receivable, accounts payable and inventory management.
The Exporter can also negotiate terms with its suppliers, and ask for credit period on its invoices. However this is not always possible as their suppliers may not be able to offer credit terms. And fixed overheads need to be paid on time for the running of the business.
Thus if an exporter wants to grow its business and capitalize on new business opportunities, it needs to look for a short-term credit line. The exporter can approach banks, however banks typically ask for collateral and have a slow approval process. This is where Trade Finance companies like Seawise Capital can help. Trade Finance companies can help exporters in their journey of growth by providing an effective working capital management route in the form of a short-term credit without needing any form of collateral.
Seawise Capital is a UK based trade finance company, offering factoring facilities to Indian Exporters. We have been operating in India since 2018, and are backed by large institutional US and UK based investors. With our own balance sheet capital, we fund the customers ourselves and have a quick funding process. We have customers all over the world, ranging from small to large scale exporters and we can tailor our solutions based on your requirements. With our fast and fully online process, you can get set up with a facility in less than a week.
One of the benefits of working with Seawise Capital over other providers is our flexibility. We understand the delicacy of the supplier/buyer relationship, and structure bespoke and cost-effective solutions that work for all the parties involved. We can cover buyers in over 150 different countries, and work with leading credit insurance providers and banking partners to make sure our clients get the best service.