Know Your Working Capital Cycle - Terkar Capital

1. Know Your Working Capital Cycle © Terkar Capital Vishal Terkar Founder Terkar Capital (yes@terkarcapital.com)

2. Working Capital: The Engine of Business Growth © Terkar Capital One being the owner, hence, you need to push all the stakeholders in one 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. direction where you can move the working capital cycle faster and better. 1

3. Accelerate Your Business Growth with Efficient Working Capital Management © Terkar Capital 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. 2

4. Factors Impacting Your Working Capital 1) Convenient and clear Payment Terms © Terkar Capital 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). 3

5. 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 © Terkar Capital 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 stakeholders 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 4

6. the products. So faster delivery will help you to cut down on your working capital. You can also © Terkar Capital smooth relationship with all your suppliers. 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 5

7. Conclusion Effectively managing working capital is crucial for maintaining a healthy cash flow, © Terkar Capital 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. Follow Terkar Capital on Linkedin!! 6