Working Capital Management

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Management Decision
Emerald Article: Working capital management: an urgent need to refocus Maynard E. Rafuse

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To cite this document: Maynard E. Rafuse, (1996),"Working capital management: an urgent need to refocus", Management Decision, Vol. 34 Iss: 2 pp. 59 - 63 Permanent link to this document: http://dx.doi.org/10.1108/00251749610110346 Downloaded on: 22-12-2012 References: This document contains references to 18 other documents Citations: This document has been cited by 3 other documents To copy this document: permissions@emeraldinsight.com This document has been downloaded 5896 times since 2005. *

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Maynard E. Rafuse, (1996),"Working capital management: an urgent need to refocus", Management Decision, Vol. 34 Iss: 2 pp. 59 - 63 http://dx.doi.org/10.1108/00251749610110346 Maynard E. Rafuse, (1996),"Working capital management: an urgent need to refocus", Management Decision, Vol. 34 Iss: 2 pp. 59 - 63 http://dx.doi.org/10.1108/00251749610110346 Maynard E. Rafuse, (1996),"Working capital management: an urgent need to refocus", Management Decision, Vol. 34 Iss: 2 pp. 59 - 63 http://dx.doi.org/10.1108/00251749610110346

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Working capital management: an urgent need to refocus

Maynard E. Rafuse Managing Director, Bennecon Limited, Process Analysis and Stock Management Consultants, London, UK

Argues that attempts to improve working capital by delaying payment to creditors is counter-productive to individuals and to the economy as a whole. Claims that altering debtor and creditor levels for individual tiers within a value system will rarely produce any net benefit. Proposes that stock reduction generates systemwide financial improvements and other important benefits. Urges those organizations seeking concentrated working capital reduction strategies to focus on stock management strategies based on “lean supply-chain” techniques.

Creditor management is essentially a Darwinian situation, the survival of the fittest. Large companies enforce their terms with smaller companies, who in turn enforce their terms with those smaller yet. The apparent intention of many UK companies is to defer payment as long as possible, often well beyond the agreed arrangements. Most purchase agreements will incorporate a single monthly payment, normally “end-month following”, but often into the second month following or later yet. Actual payment frequently goes well beyond the agreed terms. This article proposes that improvement of working capital by delaying payment to creditors is an inefficient and ultimately damaging practice, both to its practitioners and to the economy as a whole. Stock reduction strategies, drawing on some of the techniques of “lean production” are far more effective, and the article proposes that those seeking concentrated working capital reduction strategies should focus on stock...
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