Why is Working Capital Extremely Important for Your Transportation, Logistics & Warehousing Business?

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Why is Working Capital Extremely Important for Your Transportation, Logistics & Warehousing Business?

Working capital management is critical to a company's core financial health as well as its operational performance. Working capital is calculated as (current assets - current liabilities). Working capital finance is a critical indicator that determines how well a business is being run and how financially secure it is. The working capital ratio, which is calculated by dividing current assets by current liabilities, determines whether a company has enough cash flow to pay off short-term debts and expenses.

Why is Working Capital Important for Transportation, Logistics & Warehousing Businesses?

The COVID-19 pandemic has brought international attention to what we in the sector already know: transportation is a critical service and the supply chain's workhorse. As the vaccination rollout proceeds, transportation businesses are more crucial than ever to keep supply flowing and deliver critical items.

For transportation businesses, short-term financial obligations happen now and then. Lack of sufficient money to operate the business over an extended period of time is a leading cause of business failure. On paper, a business may be prosperous, but if revenue is not gathered quickly and consistently, it will acquire debt in an attempt to make payments on time.

This buildup becomes a heavy load that casts a pall over net profit and begins to eat away at it. If the problem is not fixed, the transportation business will be unable to operate and will be compelled to park its equipment until a financial solution is found. Clients will have found other carriers to meet the service responsibilities that your trucking firm failed to meet by this time. A loan taken for working capital for MSME beforehand can help deal with short-term cash flows.

The supply chain is shaped by the needs of the client. As a result, the inventory deployment is driven by the service standards. Various clients will have different service needs, and it's crucial to understand how these affect business expenditures. Examples of customer groups and services include:

Deliveries on the high street, which include frequent modest drops and a high level of service. As a result, merchandise must be kept near the supply chain dynamics for remote clients, such as those in the mining industry, which may revolve around high service needs and prices, necessitating careful inventory and transportation trade-offs.

It must be recognised that if the client base or service offering changes, the supply chain's shape may need to alter in terms of inventory levels, locations, transportation assets, and buildings, all of which will have a significant impact on capital.

The focus for mass retailers is on service consistency and reliability. It's also about keeping the supply chain's costs low. This focuses on ‘milking' supply chain assets and strictly managing inventory.

A loan taken for working capital for MSME can be just the contingency you need in case of cancellations of orders as the environment currently is highly volatile.

Conclusion

A hassle-free, tailor-made, personalised service guaranteed working capital loan from Kotak Mahindra Bank can come in handy for your transportation, logistics and warehousing business in many different ways. Hike in fuel bills, maintenance of transport, contingency, positive cash flows during slumps or expansion plans are many different reasons for a working capital loan to give you that financial push towards success. Before applying for a loan, check your eligibility to meet the criteria for a loan. There are many financial solutions tailor-made for your business, so you must do your research before applying for one.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.