Recommendation

The company can manage its working capital through better management of stocks. Excess inventories might strain the resources of the business. As a result, the firm might not have liquid cash to meet its short-term obligations. Besides, the entity should pay their vendors on time and negotiate better deals in the future. In this case, the business should source for goods and services from those suppliers who offer discounts.

Additionally, the corporation should also improve its receivables procedures. One of the approaches is by having proper collection methods. Debtors should also be managed well to ensure that money is coming on time. Therefore, the company should ensure that they do not exceed the given grace period. Businesses should also consider reducing their variable and fixed costs. Finally, the organization must solve disputes with suppliers and customers on time. The primary intention is to use out of court settlements which is less costly. Both the disagreeing parties can reach an amicable solution without incurring expenses.

Conclusion

Working capital management always ensures that the company has enough cash flows. The primary goal is to ensure that the corporation does not experience liquidity challenges. It comprises of various components such as inventory, accounts receivable and payable. There are different types of working capital. Some of these categories consist of gross and net working capital. Others are temporary and permanent working capital. A business should always choose the one that fits its needs. Working capital, therefore, measures the capability of the corporation to produce cash whenever it is needed. Other factors that determine the working capital of a firm include the existing competition in the industry. Therefore, the business should always maintain a good working capital if it intends to thrive in the future.

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