Working capital requirement (WCR) is a fundamental financial concept that all companies, particularly small and medium-sized enterprises (SMEs), need to master in order to ensure their sustainability and growth. It represents the amount a company needs to finance its operating cycle, i.e., the sum it requires to cover its current expenses before it can collect revenues from its sales.
Understanding WCR and its impact on SME financing
WCR is the difference between current assets (such as inventories and trade receivables) and current liabilities (mainly trade payables). In other words, it’s the money tied up in the company’s operating cycle. A positive WCR means that the company must find resources to finance its current activity, while a negative WCR indicates that the company has a cash surplus generated by its operations.
For SMEs, effective management of working capital requirements is crucial. Poorly managed working capital can lead to cash flow problems, limiting the company’s ability to meet short-term commitments, invest in its development or seize new opportunities.
Factors influencing WCR
Several factors can have an impact on a Swiss company’s WCR:
- Inventory management policy: excessive stockpiling ties up funds.
- Payment terms granted to customers: the longer the payment terms, the higher the WCR.
- Payment terms obtained from suppliers: the shorter they are, the greater the WCR.
- Seasonality of activity: certain sectors experience peaks in activity requiring more funds.
- Company growth: rapid expansion can significantly increase WCR.
Financing options for working capital
To finance their working capital requirements (WCR), SMEs have a range of different solutions at their disposal. It can be complex for SMEs to navigate through the options of bank credit, leasing, factoring, participatory financing or alternative financing. Each solution has its advantages and disadvantages, which we summarize below:
- Self-financing: using the company’s retained earnings. This method is limited by the company’s ability to generate profits, and can slow down growth.
- Traditional bank credit: obtaining a loan from a traditional bank. Although common, this process can be lengthy and require substantial collateral.
- Factoring: assign your trade receivables to a factor who advances the funds. This can be quickly set up and combined with other types of financing.
- Supplier credit: negotiate longer payment terms with suppliers. This option depends on the relationship with suppliers and their own financial situation.
- Alternative financing solutions: platforms like Kredo offer innovative and flexible solutions for financing working capital.
Kredo: an innovative financing solution for Swiss companies
Kredo is positioned as a modern alternative to traditional working capital financing methods for Swiss SMEs. Financing via Kredo offers several advantages:
- Speed: thanks to a digitized process, and financing secured upstream by Kredo Debt Fund I, companies can obtain financing much faster than with traditional methods. It takes around 1 week to obtain financing with Kredo.
- Flexibility: Kredo offers financing solutions tailored to the specific needs of each company.
- Accessibility: the platform is aimed at SMEs with an established business model and at least two full financial years, offering a solution for many companies.
- A human, non-standardized approach: Kredo will analyze your company in detail, taking into account the particularities of your business or its activity. Each investment project is also challenged in the process.
- Security: Kredo focuses on data protection and transaction security, reassuring companies that their financial information remains confidential.
- Matchmaking: the platform connects SMEs in need of financing with investors interested in financing Swiss companies, creating a beneficial ecosystem for the local economy.
By using a solution like Kredo, SMEs can quickly and simply optimize their WCR management, maintain a healthy cash flow and seize growth opportunities without being held back by short-term financing constraints.
Conclusion
Effective management of working capital is a key factor in the financial health of SMEs. With the emergence of innovative solutions such as Kredo, Swiss companies now have fast, flexible alternatives for financing their working capital. These new options enable SMEs to better navigate a constantly changing economic environment, ensuring their long-term survival and growth.