How to Improve Working Capital Management

Working capital management is an important issue for companies which aim for higher efficiency levels in operational and financial activities. The basic components include current assets and current liabilities where a business wants to ensure sufficient cash flow for their day-to-day transactions, which ultimately helps it pay short-term debts, grow and improve the overall structure.

Keeping in mind the economic downturn, the significance of working capital management has intensified in the eyes of all managers and senior executives, who are aiming to expand the business by utilizing minimal resources. While the essence of working capital management is the ability of the business to manage its current assets and liabilities, in hindsight, many external factors also affect the process which include legal practices and market pressures.

Instructions

  • 1

    Core activities

    We start the discussion by focusing on the core activity. Businesses will need cash at all time, but often the money is stuck up with creditors, as inventory or simply with the sales team. Rather than pin pointing each issue, it is important that businesses start to incorporate all activities at once to free up as much cash as possible.

    The inventory level must be handled efficiently where a business ensures that the stock doesn’t get piled up. Plan properly on how the stock will be sold. Sometimes selling in bulk will be a wise option, where you will be able to maximize revenue, along with lowering your costs. Communicate with the sales staff and get the invoices on a daily basis. Make sure that customers pay on time, which can be done by setting an extended leverage limit at the first place rather than asking them to pay back their dues.

  • 2

    Unexpected events

    One must plan for certain unexpected events. Your sales level will be affected due to a new entrant, or an uncertain change in market trend. A company should asses any potential risk factors with practicality and objectivity.

  • 3

    Customer feedback

    By keeping customers in the loop, a business is covering two major aspects.  Firstly, it will help them plan inventory levels by increasing or reducing the production of a particular good. Secondly it assures retention of prime customers.

  • 4

    Wide appeal

    Irrespective of the size of your business, make sure the issue is addressed on a broad basis with no break in communication channels. For instance, the information must be uniformly delivered to all departments so that cash made at one place can be used at another.

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