Strategies for Singapore Businesses to Unlock their Working Capital

Cash is king. It translates to more free cash flow for debt repayment, reinvestment, and issuing dividends. But, for most business owners, it is uncommon to find that they would have a tremendous amount of cash (and that means value) locked in their working capital. 

Sure, unlocking working capital is crucial and even more so in a time like this, but how does a business owner do it? Here are some tips. 

1. Review your credit-granting policies 

There is no profit-driven company that would lend money to anyone on an interest-free basis, so what makes your business any different from theirs? It is not too much to ask to be paid within a reasonable time frame and not repeatedly chase for payment after completing the job. 

We recommend that you start documenting your credit granting procedure (if you have yet to do so!) and make it part of your standard operating procedure (SOP). 

2. Unlock working capital trapped in unpaid invoices 

Invoice financing is commonly used to mitigate slow or deferred payments. It is a significant cash flow tool for SMEs. 

Using invoice financing, an SME submits its invoices to a lender. The lender then disburses a loan as a percentage of the invoice (usually up to 90 percent of the invoice amount). The lender then collects the payments on the due date, whenever this may be on the invoice.

It is quicker and more straightforward than applying for a conventional loan and helps to resolve cash flow problems. Depending on the invoice financing provider you use, invoice financing can be obtained in as little as 48 hours. 

Invoice financing is also used because of the smaller loan amounts involved. Traditional lenders seldom disburse small loans to cover supplier costs or a deferred invoice, as the administrative costs involved in processing small loans would outweigh the returns for them.

3. Supply chain financing

Supply chain financing is a process that links buyers and sellers with a third party, such as a bank or an alternative lender, to improve cash flow and efficiency. For example, an SME could deliver the goods to a buyer, sending the payables to a lender of choice. 

The lender then pays the SME early instead of having to wait for its buyers’ payment. Later on, the buyer will pay the lender the amount due. It allows the buyer to delay payment for a more extended period. As such, both the SME and its customers can access more funds. 

4. Look into your inventory management

While inventory management is not one of the easiest parts of the business, it plays a crucial role in unlocking working capital. 

Make a concerted effort to create a proper inventory management system and employ planning for demand and supply tools and rationalise product portfolios. While it seems like a mammoth task, keep in mind that these steps will benefit the business in the long run by generating savings and improving working capital. 

It’s more than just cash flow 

Or also known as the inflow and outflow of money from your business, cash flow is the lifeblood of any business. It plays a vital role in the daily operations, purchasing inventory, paying staff, and most importantly, operating costs. 

A positive cash flow presents a favourable business outlook, indicating an increase in liquid assets and thus attracts potential investors. SME owners can settle their debts, reinvest and reinvent their business. It is their next best shield against financial challenges in the future. 

They can look forward to a myriad of opportunities such as growth, utilising unlocked cash for expansion. SME owners may find their value increase and leave the business healthier for their chosen successors, allowing their legacy to continue smoothly. The extra funds enable the new management team to work through any issues about the transition. 

With working capital unlocked, SME owners can afford the sweet taste of freedom and flexibility to plot their next step and immediately take charge of their goals. 

Let’s Get Started 

Your business must be registered on ACRA, with an operating history of at least 2 years and a minimum annual revenue of at least SGD 500k. 

Here’s what you need to send in*

  • Bank Statements (past 6 months)
  • Financial Statement/ Management Account (past 1 year)
  • Credit Bureau Statement (past 1 month) of Personal Guarantor(s)
  • Notice of Assessment (past 1 year) of Personal Guarantor(s)

*Required application documents may vary on application based on the financing request

Learn more about how invoice or purchase order financing could benefit your business, or check out how affordable this method of financing could be. 

Request a callback, or check out our loan calculator here