WORKING CAPITAL - Meaning of Working Capital

Capital required for a business can be classified under two main categories via,
1)

Fixed Capital

2)

Working Capital

Every business needs funds for two purposes for its establishment and to carry
out its day- to-day operations. Long terms funds are required to create production
facilities through purchase of fixed assets such as p&m, land, building, furniture,
etc. Investments in these assets represent that part of firms capital which is
blocked on permanent or fixed basis and is called fixed capital. Funds are also
needed for short-term purposes for the purchase of raw material, payment of wages
and other day to- day expenses etc.
These funds are known as working capital. In simple words,
working capital refers to that part of the firms capital which is
required for financing short- term or current assets such as cash,
marketable securities, debtors & inventories. Funds, thus,
invested in current assts keep revolving fast and are being
constantly converted in to cash and this cash flows out again in
exchange for other current assets. Hence, it is also known as
revolving or circulating capital or short term capital.
CONCEPT OF WORKING CAPITAL
There are two concepts of working capital:
1.

Gross working capital

2.

Net working capital

The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those

Assets which can convert in to cash within a short period normally one
accounting year.
CONSTITUENTS OF CURRENT ASSETS
1)

Cash in hand and cash at bank

2)

Bills receivables

3)

Sundry debtors

4)

Short term loans and advances.

5)

Inventories of stock as:

a.

Raw material

b.

Work in process

c.

Stores and spares

d.

Finished goods

6. Temporary investment of surplus funds.

7. Prepaid expenses
8. Accrued incomes.
9. Marketable securities.

In a narrow sense, the term working capital refers to the net working. Net
working capital is the excess of current assets over current liability, or, say:
NET WORKING CAPITAL = CURRENT ASSETS CURRENT
LIABILITIES.

Net working capital can be positive or negative. When the current assets
exceeds the current liabilities are more than the current assets. Current
liabilities are those liabilities, which are intended to be paid in the ordinary
course of business within a short period of normally one accounting year
out of the current assts or the income business.
CONSTITUENTS OF CURRENT LIABILITIES
1.

Accrued or outstanding expenses.

2.

Short term loans, advances and deposits.

3.

Dividends payable.

4.

Bank overdraft.

5.

Provision for taxation , if it does not amt. to app. Of profit.

6.

Bills payable.

7.

Sundry creditors.

The gross working capital concept is financial or going concern concept whereas
net working capital is an accounting concept of working capital. Both the concepts
have their own merits.
The gross concept is sometimes preferred to the concept of working capital for the
following reasons:
1.

It enables the enterprise to provide correct amount of working capital at

correct time.

2.

Every management is more interested in total current assets with which it

has to operate then the source from where it is made available.

3.

It take into consideration of the fact every increase in the funds of the
enterprise would increase its working capital.

4.

This concept is also useful in determining the rate of return on investments

in working capital. The net working capital concept, however, is also
important for following reasons:

It is qualitative concept, which indicates the firms ability to meet

to its operating expenses and short-term liabilities.

IT indicates the margin of protection available to the short term

creditors.

It is an indicator of the financial soundness of enterprises.

It suggests the need of financing a part of working capital

requirement out of the permanent sources of funds.

CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified in to ways:
o

On the basis of concept.

On the basis of time.

On the basis of concept working capital can be classified as gross working

capital and net working capital. On the basis of time, working capital may
be classified as:

Permanent or fixed working capital.

Temporary or variable working capital

PERMANENT OR FIXED WORKING CAPITAL

Permanent or fixed working capital is minimum amount which is required to
ensure effective utilization of fixed facilities and for maintaining the circulation of
current assets. Every firm has to maintain a minimum level of raw material, workin-process, finished goods and cash balance. This minimum level of current assts is
called permanent or fixed working capital as this part of working is permanently
blocked in current assets. As the business grow the requirements of working capital
also increases due to increase in current assets.
TEMPORARY OR VARIABLE WORKING CAPITAL
Temporary or variable working capital is the amount of working capital which is
required to meet the seasonal demands and some special exigencies. Variable
working capital can further be classified as seasonal working capital and special
working capital. The capital required to meet the seasonal need of the enterprise is
called seasonal working capital. Special working capital is that part of working

capital which is required to meet special exigencies such as launching of extensive

marketing for conducting research, etc.
Temporary working capital differs from permanent working capital in the sense
that is required for short periods and cannot be permanently employed gainfully in
the business.
IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING
CAPITAL

SOLVENCY OF THE BUSINESS: Adequate working capital helps

in maintaining the solvency of the business by providing uninterrupted of
production.

Goodwill: Sufficient amount of working capital enables a firm to make

prompt payments and makes and maintain the goodwill.

Easy loans: Adequate working capital leads to high solvency and

credit standing can arrange loans from banks and other on easy and
favorable terms.

Cash Discounts: Adequate working capital also enables a concern to

avail cash discounts on the purchases and hence reduces cost.

Regular Supply of Raw Material: Sufficient working capital

ensures regular supply of raw material and continuous production.

Regular Payment Of Salaries, Wages And Other Day

TO Day Commitments: It leads to the satisfaction of the employees
and raises the morale of its employees, increases their efficiency, reduces
wastage and costs and enhances production and profits.

Exploitation Of Favorable Market Conditions: If a firm is

having adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices are
lower and holdings its inventories for higher prices.

Ability To Face Crises: A concern can face the situation during the
depression.

Quick And Regular Return On Investments: Sufficient

working capital enables a concern to pay quick and regular of dividends to
its investors and gains confidence of the investors and can raise more funds
in future.

High Morale: Adequate working capital brings an environment of

securities, confidence, high morale which results in overall efficiency in a
business.

EXCESS OR INADEQUATE WORKING CAPITAL

Every business concern should have adequate amount of working capital to run
its business operations. It should have neither redundant or excess working
capital nor inadequate nor shortages of working capital. Both excess as well as
short working capital positions are bad for any business. However, it is the
inadequate working capital which is more dangerous from the point of view of
the firm.
DISADVANTAGES
OF
WORKING CAPITAL

REDUNDANT

OR

EXCESSIVE

1.

Excessive working capital means ideal funds which earn no profit for
the firm and business cannot earn the required rate of return on its
investments.

2.

Redundant working capital leads to unnecessary purchasing and

accumulation of inventories.

3.

Excessive working capital implies excessive debtors and defective

credit policy which causes higher incidence of bad debts.

4.

It may reduce the overall efficiency of the business.

5.

If a firm is having excessive working capital then the relations with

banks and other financial institution may not be maintained.

6.

Due to lower rate of return n investments, the values of shares may also
fall.

7.

The redundant working capital gives rise to speculative transactions

DISADVANTAGES OF INADEQUATE WORKING CAPITAL

Every business needs some amounts of working capital. The need for working
capital arises due to the time gap between production and realization of cash from
sales. There is an operating cycle involved in sales and realization of cash. There
are time gaps in purchase of raw material and production; production and sales;
and realization of cash.
Thus working capital is needed for the following purposes:

For the purpose of raw material, components and spares.

To pay wages and salaries

To incur day-to-day expenses and overload costs such as office expenses.

To meet the selling costs as packing, advertising, etc.

To provide credit facilities to the customer.

To maintain the inventories of the raw material, work-in-progress, stores

and spares and finished stock.

For studying the need of working capital in a business, one has to study the
business under varying circumstances such as a new concern requires a lot of
funds to meet its initial requirements such as promotion and formation etc.
These expenses are called preliminary expenses and are capitalized. The
amount needed for working capital depends upon the size of the company and
ambitions of its promoters. Greater the size of the business unit, generally larger
will be the requirements of the working capital.

The requirement of the working capital goes on increasing with the growth and
expensing of the business till it gains maturity. At maturity the amount of
working capital required is called normal working capital.
There are others factors also influence the need of working capital in a business.
FACTORS
DETERMINING
REQUIREMENTS

THE

WORKING

CAPITAL

1. NATURE OF BUSINESS: The requirements of working is very

limited in public utility undertakings such as electricity, water supply and
railways because they offer cash sale only and supply services not
products, and no funds are tied up in inventories and receivables. On the
other hand the trading and financial firms requires less investment in
fixed assets but have to invest large amt. of working capital along with
fixed investments.
2. SIZE OF THE BUSINESS: Greater the size of the business,
greater is the requirement of working capital.
3. PRODUCTION POLICY: If the policy is to keep production steady
by accumulating inventories it will require higher working capital.
4. LENTH OF PRDUCTION CYCLE: The longer the manufacturing
time the raw material and other supplies have to be carried for a longer in
the process with progressive increment of labor and service costs before
the final product is obtained. So working capital is directly proportional
to the length of the manufacturing process.
5. SEASONALS VARIATIONS: Generally, during the busy season, a
firm requires larger working capital than in slack season.
6. WORKING CAPITAL CYCLE: The speed with which the working
cycle completes one cycle determines the requirements of working
capital. Longer the cycle larger is the requirement of working capital.

7.

RATE OF STOCK TURNOVER: There is an inverse corelationship between the question of working capital and the velocity or
speed with which the sales are affected. A firm having a high rate of stock
turnover wuill needs lower amt. of working capital as compared to a firm
having a low rate of turnover.

8.

CREDIT POLICY: A concern that purchases its requirements on

credit and sales its product / services on cash requires lesser amt. of
working capital and vice-versa.

9.

BUSINESS CYCLE: In period of boom, when the business is

prosperous, there is need for larger amt. of working capital due to rise in
sales, rise in prices, optimistic expansion of business, etc. On the contrary
in time of depression, the business contracts, sales decline, difficulties are
faced in collection from debtor and the firm may have a large amt. of
working capital.

10. RATE OF GROWTH OF BUSINESS: In faster growing concern,

we shall require large amt. of working capital.
11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms
have more earning capacity than other due to quality of their products,
monopoly conditions, etc. Such firms may generate cash profits from
operations and contribute to their working capital. The dividend policy
also affects the requirement of working capital. A firm maintaining a
steady high rate of cash dividend irrespective of its profits needs working
capital than the firm that retains larger part of its profits and does not pay
so high rate of cash dividend.
12. PRICE LEVEL CHANGES: Changes in the price level also affect
the working capital requirements. Generally rise in prices leads to
increase in working capital.
Others FACTORS: These are:

Operating efficiency.

Management ability.

Irregularities of supply.

Import policy.

Asset structure.

Importance of labor.

Banking facilities, etc.

MANAGEMENT OF WORKING CAPITAL

Management of working capital is concerned with the problem that arises in
attempting to manage the current assets, current liabilities. The basic goal of
working capital management is to manage the current assets and current
liabilities of a firm in such a way that a satisfactory level of working capital
is maintained, i.e. it is neither adequate nor excessive as both the situations
are bad for any firm. There should be no shortage of funds and also no
working capital should be ideal. WORKING CAPITAL MANAGEMENT
POLICES of a firm has a great on its probability, liquidity and structural
health of the organization. So working capital management is three
dimensional in nature as
1.

It concerned with the formulation of policies with regard to

profitability, liquidity and risk.

2.

It is concerned with the decision about the composition and level of

current assets.

3.

It is concerned with the decision about the composition and level of

current liabilities.

WORKING CAPITAL ANALYSIS

As we know working capital is the life blood and the centre of a business.
Adequate amount of working capital is very much essential for the smooth
running of the business. And the most important part is the efficient
management of working capital in right time. The liquidity position of the
firm is totally effected by the management of working capital. So, a study of
changes in the uses and sources of working capital is necessary to evaluate
the efficiency with which the working capital is employed in a business.
This involves the need of working capital analysis.
The analysis of working capital can be conducted through a number of
devices, such as:
1.

Ratio analysis.

2.

Fund flow analysis.

3.

Budgeting.

1.

RATIO ANALYSIS

A ratio is a simple arithmetical expression one number to another. The

technique of ratio analysis can be employed for measuring short-term
liquidity or working capital position of a firm. The following ratios can be
calculated for these purposes:
1. Current ratio.
2. Quick ratio
3. Absolute liquid ratio
4. Inventory turnover.
5. Receivables turnover.

6. Payable turnover ratio.

7. Working capital turnover ratio.
8. Working capital leverage
9. Ratio of current liabilities to tangible net worth.

2.

FUND FLOW ANALYSIS

Fund flow analysis is a technical device designated to the study the source
from which additional funds were derived and the use to which these sources
were put. The fund flow analysis consists of:

a.

Preparing schedule of changes of working capital

b.

Statement of sources and application of funds.

It is an effective management tool to study the changes in financial position

(working capital) business enterprise between beginning and ending of the
financial dates.

3.

WORKING CAPITAL BUDGET

A budget is a financial and / or quantitative expression of business plans and

polices to be pursued in the future period time. Working capital budget as a
part of the total budge ting process of a business is prepared estimating
future long term and short term working capital needs and sources to finance
them, and then comparing the budgeted figures with actual performance for
calculating the variances, if any, so that corrective actions may be taken in
future. He objective working capital budget is to ensure availability of funds
as and needed, and to ensure effective utilization of these resources. The

successful implementation of working capital budget involves the preparing

of separate budget for each element of working capital, such as, cash,
inventories and receivables etc.

ANALYSIS OF SHORT TERM FINANCIAL POSITION OR

TEST OF LIQUIDITY
The short term creditors of a company such as suppliers of goods of credit
and commercial banks short-term loans are primarily interested to know
the ability of a firm to meet its obligations in time. The short term
obligations of a firm can be met in time only when it is having sufficient
liquid assets. So to with the confidence of investors, creditors, the smooth
functioning of the firm and the efficient use of fixed assets the liquid
position of the firm must be strong. But a very high degree of liquidity of
the firm being tied up in current assets. Therefore, it is important proper
balance in regard to the liquidity of the firm. Two types of ratios can be
calculated for measuring short-term financial position or short-term
solvency position of the firm.
1.

Liquidity ratios.

2.

Current assets movements ratios.

A) LIQUIDITY RATIOS
Liquidity refers to the ability of a firm to meet its current obligations as
and when these become due. The short-term obligations are met by
realizing amounts from current, floating or circulating assts. The current
assets should either be liquid or near about liquidity. These should be
convertible in cash for paying obligations of short-term nature. The
sufficiency or insufficiency of current assets should be assessed by
comparing them with short-term liabilities. If current assets can pay off the
current liabilities then the liquidity position is satisfactory. On the other

hand, if the current liabilities cannot be met out of the current assets then
the liquidity position is bad. To measure the liquidity of a firm, the
following ratios can be calculated:
1.

CURRENT RATIO

2.

QUICK RATIO

3.

ABSOLUTE LIQUID RATIO

1. CURRENT RATIO
Current Ratio, also known as working capital ratio is a measure of general
liquidity and its most widely used to make the analysis of short-term
financial position or liquidity of a firm. It is defined as the relation
between current assets and current liabilities. Thus,
CURRENT RATIO = CURRENT ASSETS
CURRENT LIABILITES
The two components of this ratio are:
1)

CURRENT ASSETS

2)

CURRENT LIABILITES

Current assets include cash, marketable securities, bill receivables, sundry

debtors, inventories and work-in-progresses. Current liabilities include
outstanding expenses, bill payable, dividend payable etc.
A relatively high current ratio is an indication that the firm is liquid and
has the ability to pay its current obligations in time. On the hand a low
current ratio represents that the liquidity position of the firm is not good
and the firm shall not be able to pay its current liabilities in time. A ratio

equal or near to the rule of thumb of 2:1 i.e. current assets double the
current liabilities is considered to be satisfactory.
2. QUICK RATIO
Quick ratio is a more rigorous test of liquidity than current ratio. Quick
ratio may be defined as the relationship between quick/liquid assets and
current or liquid liabilities. An asset is said to be liquid if it can be
converted into cash with a short period without loss of value. It measures
the firms capacity to pay off current obligations immediately.
QUICK RATIO = QUICK ASSETS
CURRENT LIABILITES
Where Quick Assets are:
1)

Marketable Securities

2)

Cash in hand and Cash at bank.

3)

Debtors.

A high ratio is an indication that the firm is liquid and has the ability to
meet its current liabilities in time and on the other hand a low quick ratio
represents that the firms liquidity position is not good.
As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally
thought that if quick assets are equal to the current liabilities then the
concern may be able to meet its short-term obligations. However, a firm
having high quick ratio may not have a satisfactory liquidity position if it
has slow paying debtors. On the other hand, a firm having a low liquidity
position if it has fast moving inventories.
3. ABSOLUTE LIQUID RATIO
Although receivables, debtors and bills receivable are generally more
liquid than inventories, yet there may be doubts regarding their realization

into cash immediately or in time. So absolute liquid ratio should be

calculated together with current ratio and acid test ratio so as to exclude
even receivables from the current assets and find out the absolute liquid
assets. Absolute Liquid Assets includes :
ABSOLUTE LIQUID RATIO =

ABSOLUTE LIQUID ASSETS

CURRENT LIABILITES

ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES.

) CURRENT ASSETS MOVEMENT RATIOS

Funds are invested in various assets in business to make sales and earn
profits. The efficiency with which assets are managed directly affects the
volume of sales. The better the management of assets, large is the amount
of sales and profits. Current assets movement ratios measure the efficiency
with which a firm manages its resources. These ratios are called turnover
ratios because they indicate the speed with which assets are converted or
turned over into sales. Depending upon the purpose, a number of turnover
ratios can be calculated. These are :
1.

Inventory Turnover Ratio

2.

Debtors Turnover Ratio

3.

Creditors Turnover Ratio

4.

Working Capital Turnover Ratio

The current ratio and quick ratio give misleading results if current assets
include high amount of debtors due to slow credit collections and moreover
if the assets include high amount of slow moving inventories. As both the
ratios ignore the movement of current assets, it is important to calculate the
turnover ratio.

1.

INVENTORY TURNOVER OR STOCK TURNOVER

RATIO :
Every firm has to maintain a certain amount of inventory of finished
goods so as to meet the requirements of the business. But the level of
inventory should neither be too high nor too low. Because it is
harmful to hold more inventory as some amount of capital is blocked
in it and some cost is involved in it. It will therefore be advisable to
dispose the inventory as soon as possible.

INVENTORY TURNOVER RATIO =

COST OF GOOD SOLD

AVERAGE INVENTORY
Inventory turnover ratio measures the speed with which the stock is
converted into sales. Usually a high inventory ratio indicates an
efficient management of inventory because more frequently the stocks
are sold ; the lesser amount of money is required to finance the
inventory. Where as low inventory turnover ratio indicates the
inefficient management of inventory. A low inventory turnover
implies over investment in inventories, dull business, poor quality of
goods, stock accumulations and slow moving goods and low profits as
compared to total investment.
AVERAGE STOCK = OPENING STOCK + CLOSING STOCK
2
2.

INVENTORY CONVERSION PERIOD:

INVENTORY CONVERSION PERIOD = 365 (net working days)

INVENTORY TURNOVER RATIO

3.

DEBTORS TURNOVER RATIO :

A concern may sell its goods on cash as well as on credit to increase

its sales and a liberal credit policy may result in tying up substantial funds
of a firm in the form of trade debtors. Trade debtors are expected to be
converted into cash within a short period and are included in current assets.
So liquidity position of a concern also depends upon the quality of trade
debtors. Two types of ratio can be calculated to evaluate the quality of
debtors.
a)

Debtors Turnover Ratio

b)

Average Collection Period

DEBTORS TURNOVER RATIO = TOTAL SALES (CREDIT)

AVERAGE DEBTORS
Debtors velocity indicates the number of times the debtors are turned
over during a year. Generally higher the value of debtors turnover ratio the
more efficient is the management of debtors/sales or more liquid are the
debtors. Whereas a low debtors turnover ratio indicates poor management
of debtors/sales and less liquid debtors. This ratio should be compared with
ratios of other firms doing the same business and a trend may be found to
make a better interpretation of the ratio.
AVERAGE DEBTORS= OPENING DEBTOR+CLOSING DEBTOR
2
4.

AVERAGE COLLECTION PERIOD :

Average Collection Period =

No. of Working Days

Debtors Turnover Ratio

The average collection period ratio represents the average number of
days for which a firm has to wait before its receivables are converted into
cash. It measures the quality of debtors. Generally, shorter the average

collection period the better is the quality of debtors as a short collection

period implies quick payment by debtors and vice-versa.
Average Collection Period =

365 (Net Working Days)

Debtors Turnover Ratio

5.

WORKING CAPITAL TURNOVER RATIO :

Working capital turnover ratio indicates the velocity of utilization of
net working capital. This ratio indicates the number of times the
working capital is turned over in the course of the year. This ratio
measures the efficiency with which the working capital is used by
the firm. A higher ratio indicates efficient utilization of working
capital and a low ratio indicates otherwise. But a very high working
capital turnover is not a good situation for any firm.
Working Capital Turnover Ratio =

Cost of Sales
Net Working Capital

Working Capital Turnover

Sales
Networking Capital

Cash mangement
Cash management is a broad term that covers a number of functions that help individuals and
businesses process receipts and payments in an organized and efficient manner. Administering cash
assets today often makes use of a number of automated support services offered by banks and
other financial institutions. Services range from simple checkbookbalancing to investing and using
software that allows easy, automated cash collection. Proper management of company funds
requires those in the finance department to be extremely literate regarding the different strategies
and tools available. Technology is drastically changing how businesses manage their funds,
streamlining processes.

Definition
Cash management is a set of strategies or techniques a company uses to collect, track and invest
money. Although cash by definition refers only to paper or coin money, in cash management,
companies usually also work with cash equivalents such as checks. This is becoming increasingly
common as the money system becomes more abstract, using electronic methods.
Purpose
In general, small businesses do not always have the ability to obtain the credit they might need.
They have to rely more on their own money to meet expenses. Even in a large business, costs might
come up that are not expected. Being unable to handle these situations puts a company at risk for
loss of revenue or, in the worst case scenario, going out of business.
Cash management lets companies process and use their money in such a way that they have
adequate funds available for regular costs like paying employees. It ensures that the company has
some money for the things they did not plan on, such as a higher-than-expected increase in the cost
of materials. The business also uses these techniques to check that people are paying as they
should and that the funds are used for their original intentthat is, it prevents payment loss and
heightens financial and overall operational accountability. These strategies influence cash flow, as
well, making it more likely that the business will have the funds it needs at the right time.
Range of Services
Companies use a wide variety of techniques in cash management. One of the simplest is checkbook
or account balancing, also known as reconciliation. Investing in stock and other securities is also
part of financial management strategies for many businesses. Many organizations use software
programs to automate how the business collects funds from clients. Agencies routinely use other
methods such as Internet sevices, armored car services, automated clearing houses, controlled
disbursement, lockboxes, positive pay and reverse positive pay, cash concentration and balance
reporting.

What is Inventory Management?

Effective inventory management is all about knowing what is on hand, where it is in use, and how
much finished product results.
Inventory management is the process of efficiently overseeing the constant flow of units into and out of an
existing inventory. This process usually involves controlling the transfer in of units in order to prevent the
inventory from becoming too high, or dwindling to levels that could put the operation of the company into
jeopardy. Competent inventory management also seeks to control the costs associated with the inventory,
both from the perspective of the total value of the goods included and the tax burden generated by the
cumulative value of the inventory.
Balancing the various tasks of inventory management means paying attention to three key aspects of any
inventory. The first aspect has to do with time. In terms of materials acquired for inclusion in the total
inventory, this means understanding how long it takes for a supplier to process an order and execute a
delivery. Inventory management also demands that a solid understanding of how long it will take for those

materials to transfer out of the inventory be established. Knowing these two important lead times makes it
possible to know when to place an order and how many units must be ordered to keep production running
smoothly.
Calculating what is known as buffer stock is also key to effective inventory management. Essentially,
buffer stock is additional units above and beyond the minimum number required to maintain production
levels. For example, the manager may determine that it would be a good idea to keep one or two extra
units of a given machine part on hand, just in case an emergency situation arises or one of the units
proves to be defective once installed. Creating this cushion or buffer helps to minimize the chance for
production to be interrupted due to a lack of essential parts in the operation supply inventory.
Inventory management is not limited to documenting the delivery of raw materials and the movement of
those materials into operational process. The movement of those materials as they go through the various
stages of the operation is also important. Typically known as a goods or work in progress inventory,
tracking materials as they are used to create finished goods also helps to identify the need to adjust
ordering amounts before the raw materials inventory gets dangerously low or is inflated to an unfavorable
level.
Finally, inventory management has to do with keeping accurate records of finished goods that are ready
for shipment. This often means posting the production of newly completed goods to the inventory totals as
well as subtracting the most recent shipments of finished goods to buyers. When the company has a
return policy in place, there is usually a sub-category contained in the finished goods inventory to account
for any returned goods that are reclassified as refurbished or second grade quality. Accurately maintaining
figures on the finished goods inventory makes it possible to quickly convey information to sales personnel
as to what is available and ready for shipment at any given time.
In addition to maintaining control of the volume and movement of various inventories, inventory
management also makes it possible to prepare accurate records that are used for accessing any taxes
due on each inventory type. Without precise data regarding unit volumes within each phase of the overall
operation, the company cannot accurately calculate the tax amounts. This could lead to underpaying the
taxes due and possibly incurring stiff penalties in the event of an independent audit.

Accounts Receivable Management

Are you running a business? Do you require financing assistance? Accounts
receivable management may be exactly what your business needs to get started or
to grow into that successful company you've dreamed about. Everyone knows that
any flourishing company needs adequate financing in place in order to prosper and
grow. That is exactly what an accounts receivable management firm can do for you.
From helping to reduce the risk of bad debt to supplying your company with cash for
its accounts receivables, the benefits of dealing with an accounts receivables
management firm are endless.
Accounts receivable management explained

If you are new to the world of business finance, you may not know enough about
accounts receivable management in order to make an informed decision on whether
it is a viable option for your business. In brief, accounts receivables management
companies offer financing services to new companies by paying cash in place of the
sale of receivables (debts owing).
No one needs to explain to you that a company needs a broad level of cash flow to
make ends meet; from paying employees to paying suppliers to investing in
company growth, finances are vital to the health and growth of any company, large
or small. Yet, without any collateral or established credit history, a bank is very
unlikely to provide any business with sufficient financing.
This is where accounts receivable management can help you. For example, rather
than wait for your customers to pay their invoices-this can often take between 30
and 90 days-you can benefit from accounts receivable management by using these
receivables as collateral. By selling them at a small discount to an accounts
receivable management company, you can have the cash you need within a few
days, rather than a few months.