Navigating inflation with working capital solutions

The rate of escalating costs for products and services in an economy is measured by inflation. A little inflation is beneficial because it shows that an economy is functioning well and balancing supply and demand. However, high inflation can have serious adverse effects since it raises the price of products and services and, consequently, reduces the value of long-term savings.

The amount of money a firm needs to sustain its operations, known as working capital, can significantly increase when inventories and receivables rise. As a result, higher working capital needs may require more borrowing, increasing interest costs and hurting profitability. Conversely, a drop in working capital may lead to a higher interest rate because solid working capital requirements are essential for competitive borrowing rates.

By utilizing the working capital solutions from Skyscend, you can help clients navigate these challenging times. Their O ultimate objective is to increase supply chain transparency, aid businesses in understanding imbalances, and identify areas for improvement. Additionally, companies can look at ways to strengthen their working capital positions by leveraging Skyscend's working capital solutions, invoice automation, and financial supply chain management, which can assist suppliers in gaining access to the funds they require for expansion and investment.

Here are four actions you may take to reduce the amount of working capital your business needs:

1. Encourage buyers for early payment

Working capital requirements will be reduced since additional money received through early payment will be recorded as existing liabilities on the balance sheet. Prepays allow you to use those cash to finance your business instead of borrowing from a bank. Start explaining that to your clients. Your inventory risk is reduced by growing your prepay programs and attaching them to agreements for the goods your growers are aware they will require. Additionally, it relieves pressure on working capital.

2. Think about changing your policies for receivables

Let's sharpen up your receivables procedures right now. First, focus on accelerating receivables collection. Lower receivables translate into less need for working capital. Also, consider outsourcing your liabilities, improving your cash flow, and taking those receivables off your balance sheet. You would have a better working capital position as a result.

3. Increase the terms you provide suppliers

It would be worthwhile to make an effort to communicate the higher volatility risk to suppliers. You can raise payables by negotiating better terms with your suppliers, lowering your need for working capital. Naturally, not all products may be eligible for extended durations due to supply issues. You can extend the terms on some products, though.

4. Maintain communication with your lender

The ratios that banks monitor to assess the strength of their clients' balance sheets could be impacted by multiples in inventories and the ensuing rise in working capital requirements. Higher interest rates on your budget line can follow a fall in your company's ratios. In addition, the Fed may opt to boost interest rates if inflationary pressure persists. To avoid surprises, stay in frequent communication with your lender.

Wrapping Up

Products from Skyscend are designed to assist businesses in understanding their supply chain and resolving the intricate operational and financial problems they encounter daily. As a result, organizations will be better able to function in today's difficult economic environment by being given transparency and solutions to manage their requirements for working capital while also constructing a more robust and healthier supply chain.

The supply chain is essential to your inventory management and overall business strategy. By reducing wait times for popular products, your business can save money and improve customer happiness with Skyscend's SCF AI.

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