Manufacture is someone or an industry that deals with the production of products for sale or use. They deal with the processing of raw materials into finished goods ready for sale or use.
Why manufacturers face working capital challenges?
A company may have a healthy asset position and profitable but still face liquidity challenges due to insufficient working capital. Working capital is the short-term assets available in a business that enables it to meet its financial obligations. The shortfall of working capital in most scenarios happens because, often, manufacturers are obliged to meet supplier and production expenses before goods being manufactured products are sold.
How do manufacturers deal with working capital challenges?
The working capital term sounds easy to understand, you need to divide total current assets by total current liabilities then you get the ratio you can use to derive your ability to pay the short-term debt. Working capital is no rocket science; it only shows how liquid a company is at any given time. Many manufacturing companies turn to asset financing and asset-based lending with the core aim to alleviate the delayed timing during the lead times of resource-intensive goods manufacturing process and the time when the goods are sold out. Even when the finished products are sold, it is not a guarantee that the cash will be available because some customers take goods on credit and there is nothing you can do about and they will pay you months later, these customers unaware courses cash flow shortfalls in the business.
To deal with working capital challenges, companies turn to internal and foreign financiers to keep their immediate expenditure afloat. Internal lenders include local banks, foreign financial companies willing to invest their monies sees opportunity in the manufacturing industry because it is not uncommon to find customers and distributors taking manufactured products and taking ling time before settling their debts. Relatives living abroad, for example, may want to invest in the manufacturing industry and innocent of how to wire funding without extra exorbitant transfer charges from other countries. Funds transfer shouldn’t be a problem here. A person who wishes to participate in financial agreements between manufactures should be willing to transfer finances through XE Money Transfer or any other money transfer agency available.
Strategies for managing working capital
Checks and balances exist handy in managing the working capital of a manufacturing company. Vital is to ask the customers to pay promptly for the products and if they must take them on loan basis, should adhere to rules and regulations, important of them all is to be faithful to the manufactures and honour their efforts.
Optimize inventory by balancing supply and demand which is the rule of business in today’s world. It means having the right amount of finished products that can address customer’s needs and not a penny more for what is needed.
To silver line cash to cash cycle and sometimes to inventory, the art to strike a balance between the two because more often than not when you solve one of the challenges, the other is halfway solved.