Know your Working Capital Cycle

 

As a business owner, your ability to execute can be measured by the number of working capital cycles you can complete. The higher the number of working capital cycles, the higher the churning, the lower the indirect cost (fixed cost may remain proportionate) and the lower the cost higher the margin levels.

One being the owner, hence, you need to push all the stakeholders in one direction where you can move the working capital cycle faster and better.

Accelerate Your Business Growth with Efficient Working Capital Management

Generally, the working capital cycle varies from industry to industry. The working capital cycle for the manufacturing and service industry may be around 30–90 days and for the trading industry, it may be for around a day only. So shorter the working capital, the better the churning of the funds and the better the churning, the higher the margin in the business.

Nowadays getting work orders may be easy but delivery on time is tough and may get tougher every day. And one of the many reasons for it is the working capital arrangement. Most of the time, instead of using your bank credit facility, your customer wants to use your credit facility with the bank. So keeping a close eye on working capital is one of the important parts of financial management.

Factors Impacting Your Working Capital

1) Convenient and clear Payment Terms

You should have a very clear understanding of the payment terms with your customer. Because you're also a customer for your suppliers. In a scenario, where you misunderstood your payment terms with your customer, it will not only impact your working capital cycle but also impact your supplier's working capital cycle. Your debtors will pay you late, so you may pay late to your suppliers.

2) Understand Your working capital supporters

Let's say you have a working capital limit of Rs. 5 cr from your banker and the available facility is getting exhausted with your existing work orders, then you should be very careful while taking the new orders. There are multiple ways to deal with this scenario.

a. First, you can ask your existing customers if they can pay you early. If yes, you can use these funds to procure the material for a new order.

b. Second, you can check with your existing bankers, if they can enhance your working capital limit (this may be time taking part).

c. Third, check with your creditors, if they can allow an extra credit period.

d. Fourth, You can also explore if you can get some advance (proportionate to your raw material purchase) for a new order and the remaining can be paid on a milestone basis.

3) Long-term association with all stakeholders

This is a very important aspect. Choose all the stakeholders wisely and stay with them for a long time. Including your raw material suppliers to your daily utility supplier. Over the period these suppliers/stakeholders know you and your business well.

And once they get confidence in you (as a promoter) and your business, these stake holders stand by your side in tough times. While raising the funds, we have seen many businesses rebuild their business only because their stakeholders supported them in the tough times.

4) Delivery Time

Two major factors are holding India to compete with China - Fast delivery time and economies of scale. Because of these two factors, Indian manufacturers are not able to sell at cheap. In most cases, the credit period starts after the delivery of the products.

So faster delivery will help you to cut down on your working capital. You can also understand this - because of good quality roads, there is a substantial increase in the last-mile delivery of the products. This will apply only to the manufacturing and trading

5) Short on Debtors and Long on Creditors

We don't suggest you squeeze your creditors, but you can always check if you can get an extended credit period from your suppliers. And faster payment from your Debtors.

6) Timely Payment

Keeping your word is always important. This should always remain your ethical obligation. You may ask your creditors for an extended time, but make sure, the payment should not be delayed by a day even. This helps you to gain the confidence of "Person of Words". This always helps to develop and maintain a smooth relationship with all your suppliers.

Conclusion

Effectively managing working capital is crucial for maintaining a healthy cash flow, optimizing margins, and ensuring the smooth operation of your business. By understanding key factors such as payment terms, stakeholder relationships, and timely deliveries, you can navigate the complexities of the working capital cycle management and position your business for sustained success.

At Terkar Capital, we specialize in helping businesses facilitate working capital solutions tailored to unique needs. Our expertise and customized approach ensure that you have the financial support necessary to thrive in today's competitive market. So, Let Terkar Capital work with you in achieving optimal working capital cycle management and propel your business growth.

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Unlock the potential of your business with unsecured debt funding! Learn more about the growing market and Terkar Capital's tailored solutions.

 

What is an unsecured debt instrument?

One of the products for lending funds is an unsecured debt that enables borrowers to raise funds without pledging any asset as collateral. Lenders impose the qualifying requirements for funding the borrowers. The interest rate for these loans fluctuates according to various criteria, including the applicant's credit history and monthly income.

The unsecured debt interest rate offered by lenders depends on deciding factors such as financials, banking, industry type, and current market fluctuations. As it is unsecured funding the interest rates are at a bit premium as compared to secured funds.

Unsecured debt Instruments for raising funds include Trade Finance, Term loans, Overdraft, Cash credit, Bill discounting, Factoring services, Bank guarantee, LC discounting, CTGSME, and Working Capital loans. This loan type is extensively used by many businesses in India to cover any unforeseen short-term expenses that can occur as they grow.

 

Global market scenario

After the unprecedented challenges on account of the covid 19 pandemic in both FY 2021 and Q1 FY 2022, the lending landscape in India has shown remarkable recovery for the remaining part of FY 22.

As per the reports, the Global Unsecured debt market in 2022-2026 is poised to grow by $ 5. 85 billion during 2022-2026, accelerating at a CAGR of 16%. It also identifies the key driver for the unsecured debt market, i.e. increasing number of SMEs. Unsecured funds are becoming more online and quicker. Advanced technologies are used in the process, leading to a large increase in demand.

Upgradations in the Indian Market

●       In India, overall business loans provided Rs.621.1 thousand crores in 2022. Reserve Bank of India showed that bank lending to such companies increased 26% year-on-year in October. Financial companies other than banks also provide loans to such companies. Thus, a total of 11.6 million MSMEs received new loans in FY2022.

●       Unsecured business loans granted by NBFCs also jumped 36% year-on-year in the second quarter of FY23, according to data from the Finance Industry Development Council, an industry body for NBFCs.

●       The average loan made to a medium-sized enterprise stood at Rs. 1.4 crore in the final quarter of FY22.

●       Loans to small and micro-sized businesses, had a ticket size approximately of Rs.59 lakh and Rs.9 lakh, respectively.

 

When it comes to the fulfillment of capital market needs, it becomes a more complex and time-consuming process due to the wider range of options available. Therefore ‘The Global unsecured business loans market is bifurcated on the basis of Type of enterprise, Industry Vertical, Enterprise Size, and Region.

In this world of emerging financial trends and the increase in the importance of financial literacy, businesses are able to grow easily and focus on operational expandability due to the easy availability of fund flow. As the awareness of investments and borrowings are available at consumers' fingertips, the right spread of knowledge helps them to understand the right opportunity to borrow as well as invest so that they can benefit from the spreading availability.

 

Terkar Capital for Unsecured Debt Funds

We at Terkar Capital offered a broad range of advanced, tailored, affordable funding solutions hassle-free. We facilitated every possible unsecured debt solution available in the Indian Economy for our clients.

The executives at our firm have received training to streamline the process for easy accessibility for our valuable clients. So, everything concerning understanding the products, and designing the solutions as per requirement till disbursement of the funds. Not only does it end here but we also take care of your repayments and future funding requirements.