Working Capital Strategies

Topics: Money, Accounts receivable, Discounts and allowances Pages: 2 (507 words) Published: January 26, 2013
Working capital measures the availability of liquid assets that are needed to run the day to day activities. Proper management of this working capital is a key element to business success and a number one way to prevent business failure. Businesses can maintain a better position in paying their short term debts and also to fund the operational needs of the organization through different working capital strategies. Indeed, making working capital works for the company is a critical issue for growing businesses but exercising such strategies are already been proven to be effective by many companies. Strategy no. 1: Maintaining sufficient cash. Enough cash is the basis of credit, liquidity, and solvency of the firm. The business retains sufficient cash since it already surpasses its start-up stage wherein larger expenses are incurred. It makes them ready for any unforeseen events and conditions without causing too much loss to the operations and to the interest of the owners. It helps them avail cash discounts offered by their suppliers. Strategy no. 2: Get paid now. Cash flows can be enhance if businesses know how to collect the amounts owing to them faster. Businesses need to know (a.) who owes the money?, (b.) how much is owed?, (c.) how long it is owing? , and (d.) for what it is owed? Undeniably, there is a need to handle receivables properly because late payment erode profits and can lead to bad debts. A clear credit practices have been successfully communicated to staff, customers and suppliers. A company establishes credit limits per customer and checks their paying capacities. Invoices are also issued promptly and clearly. Ten to fifteen percent cash discount is offered to encourage wholesalers for prompt payments. These strategies leave their statement of financial position with no accounts receivable. Thus, a tight collection policy is practiced. Strategy no. 3: Collect past due...
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