Working Capital Management

Working Capital

Cash Flow Optimization

• Managing cash inflows and outflows to maintain liquidity and profitability
• Importance:
  • Ensures timely payment of bills and expenses
  • Maintains creditworthiness
  • Supports business growth and expansion
• Strategies:
  • Cash forecasting and budgeting
  • Accelerating accounts receivable collection
  • Managing inventory levels and reducing stockouts
  • Negotiating payment terms with suppliers

Inventory Turnover

• Measures the number of times inventory is sold and replaced within a period
• Formula: Inventory Turnover = Cost of Goods Sold / Average Inventory
• Importance:
  • Indicates efficiency in inventory management
  • Affects cash flow and working capital requirements
  • Influences profitability and competitiveness
• Strategies:
  • Implementing just-in-time (JIT) inventory systems
  • Conducting regular inventory audits and optimization
  • Improving supply chain management and logistics

Accounts Payable Management

• Managing payments to suppliers and creditors
• Importance:
  • Maintains relationships with suppliers
  • Manages cash outflows and working capital
  • Affects creditworthiness and financial health
• Strategies:
  • Negotiating payment terms and discounts
  • Implementing efficient payment processing systems
  • Prioritizing and scheduling payments

Short-term Financing

• Financing options for short-term working capital needs
• Types:
  • Bank overdrafts
  • Short-term loans
  • Invoice financing
  • Factoring
• Importance:
  • Meets temporary cash flow gaps
  • Supports seasonal or fluctuating demand
  • Supplements core financing sources
• Considerations:
  • Interest rates and fees
  • Repayment terms and schedules
  • Creditworthiness and eligibility

Cash Flow Optimization

• Managing cash inflows and outflows is crucial to maintain liquidity and profitability
• Importance of cash flow optimization: ensures timely payment of bills and expenses, maintains creditworthiness, and supports business growth and expansion
• Strategies for cash flow optimization:
• Cash forecasting and budgeting
• Accelerating accounts receivable collection
• Managing inventory levels and reducing stockouts
• Negotiating payment terms with suppliers

Inventory Turnover

• Inventory turnover measures the number of times inventory is sold and replaced within a period
• Formula: Inventory Turnover = Cost of Goods Sold / Average Inventory
• Importance of inventory turnover: indicates efficiency in inventory management, affects cash flow and working capital requirements, and influences profitability and competitiveness
• Strategies to improve inventory turnover:
• Implementing just-in-time (JIT) inventory systems
• Conducting regular inventory audits and optimization
• Improving supply chain management and logistics

Accounts Payable Management

• Accounts payable management involves managing payments to suppliers and creditors
• Importance of accounts payable management: maintains relationships with suppliers, manages cash outflows and working capital, and affects creditworthiness and financial health
• Strategies for accounts payable management:
• Negotiating payment terms and discounts
• Implementing efficient payment processing systems
• Prioritizing and scheduling payments

Short-term Financing

• Short-term financing options for working capital needs: bank overdrafts, short-term loans, invoice financing, and factoring
• Importance of short-term financing: meets temporary cash flow gaps, supports seasonal or fluctuating demand, and supplements core financing sources
• Considerations for short-term financing:
• Interest rates and fees
• Repayment terms and schedules
• Creditworthiness and eligibility