How to unlock the growth potential of working capital

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How to unlock the growth potential of working capital

Thursday, 31 August 2023 | Parry Singh

How to unlock the growth potential of working capital

Working capital is like a magic tool for business. It has an important role in driving the innovation and expansion of a company

Working capital is the lifeline of a business, representing the funds available to cover day-to-day operations and short-term financial obligations. In financial terms, it is calculated by subtracting current liabilities from current assets. The importance of working capital lies in its ability to ensure the smooth functioning of a company's operational and financial activities.

Innovate, Expand

To thrive in today's competitive business landscape, organizations must embrace innovative working capital solutions. By leveraging fintech advancements, businesses can optimize working capital, improve cash flow management, and drive innovation and expansion. Busi-nesses must explore alternative financing options, adopt digital payment solutions, integrate financial systems and leverage data analytics.

As the fintech industry evolves, businesses must stay updated on the latest trends and technologies. By partnering with fintech companies and financial institutions, businesses can unlock the full potential of their working capital, seize growth opportunities and navigate the challenges of an unpredictable economic environment.

Increasing Creativity

Research and development is essential for any business that wants to stay ahead of the competition. However, R&D projects can be costly. Working capital allows companies to obtain the funds they need to conduct research and development activities such as hiring research teams, purchasing equipment and technology, and conducting market research. By investing in research and development, companies can create new products and solutions that distinguish themselves from their competitors and attract new customers.

Marketing and Sales

Innovation and expansion go hand in hand with effective marketing and sales strategies. Companies must invest in marketing and sales to promote new products, enter new markets, and reach customers. Working capital provides the funds necessary to start the business and sales, such as advertising, product development, attending trade shows and hiring salespeople. By promoting their products and services well, companies can generate new leads, increase sales, and drive innovation and expansion.

Collaborate With Others

In some cases, innovation and expansion can be achieved through cooperation. Working capital can be used to finance these projects, allowing companies to merge with other businesses with new technologies, products or services. Businesses can leverage their collective resources, expertise and customers to drive innovation and expand. This can create synergies, increase market share and accelerate development.

Working Capital Needs

Working capital financing is required to support day-to-day operations and manage cash flow. By providing short-term financing, it allows companies to pay suppliers, cover operating costs and manage cash flow shortfalls. This financial stability allows businesses to focus on innovation and expansion without being hindered by short-term financial constraints.

Getting the Capital

Businesses can obtain working capital from the following methods – Line of Credit, Term Loan, Invoice Financing/Bill Discounting, Factoring, Cash Credit/Bank Overdraft from Banks, NBFCs (Non-Banking Financial Companies) and other financial institutions.

Challenges therein

Businesses in India often face challenges when it comes to obtaining working capital. Traditional banking institutions may have stringent requirements, lengthy approval processes, and limited flexibility in terms of collateral. These factors can make it difficult for small and medium-sized enterprises (MSMEs) and startups to access the necessary funds. This is where NBFCs can come into the picture and help MSMEs raise the required funds.

(The writer is the founder and CEO of Red Fort Capital)

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