The Effects of Working Capital Management on the Profitability of Firms

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How you manage your business’s day-to-day affairs make up its overall profitability and financial position. Working capital is what determines how efficiently and effectively you can handle your business’s daily operations, moulding the bigger picture. Hence, working capital management is critical for a business’s success.

Don’t believe us? Read on to know the effects of working capital management on the profitability of firms.

 

Optimum utilization of resources

One of the most basic ways in which effective working capital management improves the profitability of a firm is by allowing it to optimally utilise its resources.

In order to do so, the firm must carry out the required analysis, which will not only help it allocate resources optimally but also catch on to any shortage or surplus of resources, allowing for quick corrective action.

working capital loan

 

Helps make the most of business opportunities

One needs to be on the constant lookout for opportunities, for in the business world they never wait long enough to knock at one’s door.

Working capital management enables a business to tap sudden opportunities and favourable market conditions, like buying stock in bulk when it’s at low prices, which has a significantly positive impact on profitability.

 

Smooth production and sales

Working capital management facilitates stock management ensuring that the inventory is neither over nor under-stocked at any given time. It makes sure that sufficient resources are available to carry out needed production and that the sales team is able to meet its commitments to the customers.

 

Improves operational efficiency

Operational efficiency in more ways than one is dependent on working capital management. With optimum utilisation of resources, uninterrupted production and other key aspects of making the whole operating process of the business more cost-effective, working capital management helps improve the operational efficiency, in turn improving the profitability of the firm.

 

Goodwill and high morale

Effective working capital management increases the goodwill of the business by enabling it to pay its suppliers and creditors on time and maintaining transparency, thereby building good relationships and trust.

It also allows timely payment of salaries and wages to the employees, improving their morale and sense of well-being, which in turn improves their productivity and efficiency. This helps in the long-term profitability of the business.

Sometimes, because of unanticipated events, you can get a little off track with managing your working capital effectively. In such cases, you can turn to financing to help bridge the gap between your operating needs and cash resources.

Bajaj Finserv offers easy financing in the form of Working Capital Loans for small and medium enterprises. You can utilise it to meet the short-term operational obligations of your business including inventory purchases, payroll and marketing.

You can avail a working capital loan of up to Rs.30 lakh without offering any guarantee or collateral. All you need is two documents for approval and the funds will be disbursed within 24 hours. Additionally, the Flexi Loan feature proves to be a very good financing solution for your working capital needs as here you can borrow from an approved pool of funds anytime a business need arises and repay whenever your business has excess cash. Here, you’re charged interest only on the amount you actually withdraw and not on the entire loan sanctioned.

Availing funds is even easier and quicker with pre-approved offers on a variety of financial products. Simply enter a few details to check your pre-approved offer and get your loan approved instantly.

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