How to manage the working capital in the organization

  Working capital is an important metric in deciding a business' long-term financial health, irrespective of its size or industry field. By comparing the existing assets with the current liabilities the working capital available to a company can be calculated. That shows the company how, after short-term liabilities are paid off, the liquid assets remain. The efficient management of working capital should be a top priority for the CFO, since it constitutes a precise barometer to determine the financial health of the organization over the long term and ensures that the company still retains a reasonable cash flow in order to fulfill its short-term commitments.  (Working Capital (NWC), n.d.) However, businesses also have cash flow issues that affect their ability to grow, develop processes and even run their business if not efficiently handled. However, there is now a peek into hope, as 11 of the 17 sectors have since improved working capital efficiency, according to PWC’s Annua...

  Improved Liquidity Organizations achieve a consistently high level of working capital to ensure that ample cash for any possible future prospects or unforeseen scenarios is available. It also helps businesses to be versatile in how they work so that they can meet consumer orders, grow and invest more efficiently in new products. Operational Efficiency Any potential barriers to market practices are evaded by optimal use of working capital management. A 'protection net' may be given to protect against production failure or payment delays by suppliers. Increased Profits Only when areas like accounts payable and payable run effectively, can a high level of working capital be achieved. To be effective, both departments must ensure that they pay their suppliers in compliance with the agreed conditions which result in early payment discounts being collected and cash income increased.

  Despite the fact that a high level of working capital is regularly maintained, it is important to accept the fact that a 'too high' level exists. Having an exceptionally high degree on a continuous basis may show that more capital than is necessary is available inside companies – cash is not adequately spent or business growth is ignored for high liquidity. The key is to keep positive working capital regularly, but not to get too big a level that leads to waste and inefficiency. It's worth looking at the existing patterns in working capital in order to see where errors and gains are being made before you can make strategic adjustments to control your working capital effectiveness.   (Myllys, n.d.)

  Manage procurement and inventory Careful inventory management is an important element in leveraging your working capital. The cash resources of any corporation may have a heavy burden on excessive stocks. On the other hand, inadequate inventory will cause customer relations to lose sales and harm. It is important to look at the inventory and keep track of what you purchase and what you purchase. The biggest challenge for companies is to achieve optimal stock standards: encouraging enhanced interdepartmental communications and demand forecasts are measures to be taken to avoid an excessive inventory for your business. The stock may be lost if it takes time, in addition to raising prices for phyto sanitary storage and insurance. When stock levels are not defined, the optimal level cannot be controlled and the company risks losing revenue due to a material shortage. Periodic inventory reviews are useful to track stock levels and notify finance for repeated over- or over-inventor...