Supply chain businesses work hard to provide consumers and distributors with high-quality products. As you may already know, this line of business comes with its own set of challenges. For instance, a lack of working capital can be a significant source of stress, as it normally allows businesses to meet short-term financial goals, invest in growth, and act on new opportunities.
But what is working capital used for, exactly? Let’s discuss its role, how it’s used, and how to access it.
The role of working capital
Ensuring that a business meets its daily, monthly, and annual financial goals and obligations is essential, and working capital plays an integral role in this.
Working capital is all about what’s currently disposable—i.e., the money businesses have presently available. So, in this case, the more capital, the better. Access to working capital not only supports day-to-day operations but also helps with getting through challenging times (such as when there are quality control issues or when business is slow) and igniting growth.
During downtimes, having working capital available will help maintain staff levels and production. During busier seasons, working capital can increase the efficiency of operations and create opportunities for expansion.
What is working capital used for?
Let’s discuss how supply chain businesses can use working capital to bolster their activities and stay competitive.
To thrive as a business situated at the middle of the supply chain, consistent supply is a necessity. The marketplace for wholesale perishable goods is competitive and a well stocked inventory can ensure sustained customer loyalty and financial stability.
Purchasing supply, however, isn't always easy. Many small and medium sized businesses along the global supply chain often lack access to the working capital they need to purchase more supply. Funds that would typically go to paying a supplier for more product are often tied up in outstanding AR from customers with lengthy repayment terms (that are common in the industry).
Working capital is the best way for businesses to ensure their shelves are stocked, which is especially crucial during peak seasons when the demand is higher than usual.
Dealing with seasonal fluctuations
On the topic of seasonality, for produce businesses in particular, summer is considered peak season, with much more variety in produce available. Businesses will need access to working capital during this period to meet supply and demand.
On the other hand, winter months usually see reduced customer numbers and slower business. Having access to working capital helps with maintaining operations—without having to make significant staff cuts. Letting go and re-hiring staff yearly isn’t ideal, as training staff can be costly.
When thinking about what working capital is used for, perhaps the first thing that comes to mind is expansion. After all, funding new business avenues and operations takes money—a lot of it.
Access to working capital is a must to introduce new products and enter new markets. When executed strategically, businesses can expect significant returns from healthy upfront investments.
Staying competitive means introducing new infrastructure, increasing marketing efforts, researching innovative ways to expand, and diversifying product offerings. Of course, these strategies are only possible with more money in the bank.
Infrastructure improvements ensure quality products. Investing in better storage and facilities helps guarantee an efficient supply chain and helps businesses better meet safety and quality regulations.
Meanwhile, introducing new marketing and promotion tactics attracts customers and builds better brand awareness. Allocating extra capital to branding and promotional activities can increase sales and drive visibility.
Innovation is non-negotiable for all types of businesses. Markets are becoming more competitive, and businesses must employ creative strategies to stay relevant. Capital allows you to invest in research and development activities.
Plus, focusing on innovation also means opportunities for diversification. Relying on small offerings limits potential, and exploring new organic trends will help you more effectively meet customer needs to get ahead.
Enhancing sustainability practices
When considering what net working capital is used for, one often overlooked factor is enhancing sustainability. Sustainability is the cornerstone of change and growth. It should be a considerable focus for supply chain businesses (and ones that deal with produce or perishable goods in particular).
By implementing new sustainability measures, companies can reduce water and energy consumption, introduce environmentally-friendly packaging options, and satisfy the desire of eco-conscious consumers to see industry changes.
Of course, this is only possible with the right amount of capital on hand.
Meeting regulatory changes
Policies change, and new ones are introduced frequently. Easily adjusting to food safety and labeling requirements means having access to working capital. Ensuring compliance is key to preventing disruptions in operations or service delays.
Silo: your solution to accessing working capital
Now that we’ve gone over what working capital is used for, you as a business owner may be wondering how to best access it. While some may seek short-term loans from banks or lenders, others are increasingly opting for alternative funding solutions like Silo, which is often seen as a more attractive option due to their industry specific financial products and transparent costs.
Silo Capital was developed to give businesses access to working capital upfront so they don’t have to wait for customer payments. As you may already know, customers can take up to 21 to 90 days to pay their bills. Silo Instant Pay, for example, is a Silo Capital product designed to help to bridge this gap by providing up to 90% of the invoice amount in only 3 days.
Silo Cash Advance, another Silo Capital offering, is designed to help businesses make strategic investments into their operations that may require larger sums on a shorter notice than banks require. Silo Cash Advance has been used by Silo customers in a variety of ways that include diversifying their product lines, vertically integrating their business, and launching a rebrand.
All of Silo’s financial services include flexible repayment plans, helping with reconciling payments, automating collections, and tracking.
Get more insight into how businesses are leveraging Silo's Capital solutions today.