10 Tips of Working Capital Management

1. If you want to manage working capital, start to keep some cash in company’s hand for paying expenses at the time of emergency.

2. To know the 10 tips of debtors management.

3. Never purchase fixed asset with short term loan because for paying short term loan, you can not convert fixed asset into liquid and this large amount of short term loan will adversely effect on the balance of working capital.

4. Try to pay all payable amounts at maturity.

5. Try to make optimum level of inventory. Both over-stocking and under stocking is waste of money. Working capital will not be controlled, if we purchase over-stock because, we can not sell it on the time and it will increase our cost of idle money in the form of inventory and also we have to pay godown rent. Our risk of damage of inventory will increase and it will decrease our working capital.

6. To use liquidity policy and profitability policy of working capital management.

7. To analyze changes of working capital by making the statement of working capital changes with two period balance sheets.

8. Calculate average collection period and average payment period. Try to reduce both time periods.

9. For controlling working capital, finance manager should not allow to sell the products to those Customers won't pay on time; and order to pay first to those suppliers whose bills are not paid. Finance manager also should not block working capital in work in progress.

10. I was seeing Mahabharata on TV and I think that understanding of working capital is so complex like understanding of Mahabharata. Finance manager represents pandavs of Mahabharata who should be alert about every activity happen in current assets and current liability for creating optimum level of working capital management like pandavs who were alert from Shukni and Daryothan.

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Accounting Education: 10 Tips of Working Capital Management
10 Tips of Working Capital Management
Accounting Education
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