How to Fuel Business Growth With Working Capital

By Paul Roman

Like a plant needs water, every business requires a great deal of working capital to grow; however, getting access to capital isn’t always easy nor is finding the time within an ever growing to-do list to prioritize it.

To create the cash flow necessary to fuel growth and capitalize on the next big opportunity the market affords, forward-thinking businesses must be resourceful. They also must recognize that how they manage their capital today will define their competitive position tomorrow. With that said, here are three smart steps companies can take to manage their cash flow and fuel their growth:

Eliminate operational inefficiencies
The first step is to take a close look at your specific business—what are your cash needs and what is your current cash position? Will certain vendors offer you extended terms, volume discounts or early pay discounts? How are you paying for your business expenses and is there a more efficient or advantageous way to do so? Take a holistic look and explore ways to streamline your processes, create efficiencies and maximize cash flow.

Switching from paper cheques to electronic payments is one significant way to eliminate inefficiencies. With digital payment solutions, you can pay suppliers directly while getting a consolidated statement at the end of each month. In addition to reducing inefficiencies associated with cheques, your employees will be freed from cumbersome, time-eating manual calculations. You’ll also reduce your risk of fraud and gain better payment tracking and control. Keep in mind, having greater visibility into your business expenses will really help if you’re looking to renegotiate terms with your bank or lender.

Restructure payables and receivables
Next, you need to re-examine how your business is distributing payments to merchants and vendors. Prioritizing them by due dates and interest rates and structuring your payables accordingly can add flexibility to your cash flow. Also think about utilizing a program or service to help your accounts payable department make the process more efficient. Finally, make an effort to invoice quickly when pursuing receivables and consider offering incentives for faster payment. Be cautious, however. For companies with small margins, discounts for early payment may not make sense. Make sure your margin can cover it.

Create a mutually beneficial relationship with suppliers
Taking advantage of available credit is an excellent way for your business to take greater control over your accounts payable, maintain liquidity and improve cash flow without negatively impacting your relationships with banks, lenders and suppliers. New working capital management solutions, such as American Express Buyer Initiated Payments, can act as a bridge, taking responsibility for financing your company’s payment terms with suppliers.

Once you receive an invoice for the services/products, you can use the payment solution to settle up with your supplier immediately. Not only will the quick payment strengthen your relationship with your supply chain, you will then receive an additional 58 days (or more, depending on the date the supplier submits the charge) to settle the payment. Essentially, this gives your business access to an alternative funding source that allows you to cover your payables while improving operational cash flow. And suppliers get paid sooner, so it’s a win-win.

By following these simple steps, you might be surprised by how much additional cash flow you can create for your business. Organizations that focus on improving working capital can almost immediately lower borrowings, boost customer service levels and supplier relationships, increase profitability and, most importantly, free up cash for new initiatives/projects.

Make no mistake, working capital is a competitive advantage that all Canadian businesses should be looking to capitalize on, and there’s no easier way to start than by setting up electronic payments.

Paul Roman is vice president and general manager, global commercial payments, American Express Canada.