How to find working capital
How does your business find working capital? Why is working capital so important for exporters? How can you obtain the money you need to do business? This is a guide to getting working capital to take your exports to the next level.
Exporting is challenging at the best of times, let alone if the coffers are on the dry side. Businesses need working capital to take advantage of opportunities and grow their business. Indeed, it’s a topic close to the heart of many SMEs at the moment.
The JP Morgan-Fujitsu Consulting Australian SME Market Report published in July 2009, found the number one priority for SMEs when borrowing funds is to maintain sufficient working capital.
The report included survey responses from 15,000 SME business owners and found that it now takes longer for companies to be paid by debtors, with the average delay more than 50 days, compared to less than 40 days in 2006. Because of this, SMEs are becoming more reliant on loans to maintain adequate working capital, and are borrowing at high interest rates.
Of those surveyed, 44 percent carry interest rates of between 6-8 percent, with 36 percent paying above eight percent interest. In a business climate with shrinking confidence, it is more important than ever for exporters to leverage the best assistance available.
What is working capital?
Vince Cali, senior manager of product management in supply chain finance and working capital services for the National Australia Bank (nab) says: “Working capital is the day-to-day cash required to run a business, and cash flow best captures the essence of it.
“For exporters, competition not only comes from domestic firms, but organisations on the world stage. To remain competitive, exporters are often required to extend favourable trading terms to customers, which can mean longer delays in collecting payments compared to other businesses.
“On the input side, exporters often need to pay suppliers of goods or services in support of their sales quickly, which places further pressure on cash resources. Exporters still need to pay staff and meet other expenses, so sound working capital becomes critical.”
Traditional sources of working capital include an overdraft on a bank account, loans, business credit cards, sales of account receivables, sale and leaseback of equipment, and future credit card receipts.
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