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Managing funds

3 Strategies of Working Capital Financing

One of the biggest challenges for new and growing companies is managing their working capital. Businesses with slow paying customers can struggle to build enough working capital to build assets as the company grows. One method to help with this issue is through working capital financing. This financing gives you the cash you need to keep things moving while you wait for outstanding invoices to be paid. 

Different Styles of Working Capital Management

There are three different styles of working capital management, let’s look at them now:

  • Conservative – This is the least risky method of capital management. Typically, you’ll have longer term loans with sometimes higher interest rates. It has the lowest liquidity risk, but also gives the lowest potential for funding rapid growth.
  • Hedging – In this concept, the loan terms will nearly match when the asset is maturing. It requires meticulous handling and planning so there’s no lapse in payment in either direction. In this setup, short term loans will finance short term assets, while longer term assets will utilize longer term loans. It takes more effort, but also offers the possibility of greater profitability.
  • Aggressive – An aggressive strategy for utilizing working capital loans for your small business in Birmingham, AL, will give you the greatest opportunity for profitability. It also comes with the greatest risk. In this case, long-term funds will finance your permanent working capital and fixed assets while the short-term funds will finance temporary capital and any remaining permanent working capital.

working capital financing

Which Method of Working Capital Management Should You Use for Your Small Business?

Depending on where your business is in its growth cycle will impact which style of working capital management you choose to use. It’s always best to consult with experts to determine which method of working capital funding in Birmingham, AL, will work best for your business. You need to make sure you have enough liquid capital to keep your business moving while not entering a situation where you’re upside down and unable to pay off your loans when they are due.

Working Capital Financing Solutions

Small business owners face many options when it comes to financing their businesses. Working capital financing involves improving cash flow to allow for business opportunities. Whether adopting a conservative, hedging, or aggressive working capital management strategy, your business requires injections of cash to keep expanding.


Invoice Factoring as Working Capital Financing

Invoice factoring services improve a company’s cash flow. This allows the business to grow with enough working capital to cover the daily costs of operation. Invoice factoring, also known as accounts receivable funding, does not require a high personal or business credit score, a long time in business, or personal collateral. Instead, factoring companies evaluate your clients’ credit history and judge approval decisions on that.

How to Generate More Working Capital

How can you get more working capital for your business? Invoice factoring offers a growing funding source, but sometimes you need more cash immediately. Combining factoring services with purchase order financing can give your business the available working capital it needs to take on large volumes of sales.

Using Working Capital Financing Strategies

All businesses can benefit from better working capital management practices. Working capital financing can grow your business and provide insulation from economic downturns. If your business needs additional cash on hand, invoice factoring is a great solution. Purchase order funding or PO Finance is also an option. Depending on your business model and sales cycle, there are custom rate plans available to you. 

Financing your working capital does not require a bank loan or line of credit anymore. Alternative working capital financing solutions are becoming more affordable and available to small business owners. Eagle Business Credit offers free cash flow consultations with no obligation to sign up for factoring services.