Optimisation Working Capital
What is working capital? How can it be optimized? And why is it necessary? First things first, working capital is the capital of a business which is used in its day-to-day trading operations, calculated as the current assets minus the current liabilities. It’s used to measure companies liquidity and it can be seen through three areas of business: accounts receivables, accounts payable and inventory levels.
Once companies cash is trapped in working capital it can’t be used for investments which can produce assets sales, debt financing or public offerings. In order to prevent that from happening, companies must optimize terms and set working capital targets, align procurement cycles with supply and demand, partner with finance to drive sustainable change.
If not supervised competently the financial reserve will become the main flaw in the optimization of working capital.
Biggest exhaustions in the working capital are usually payables to suppliers. To say it simpler if an organization can achieve to manage its account payables and receivables in a proper manner, it can reduce operating costs. Improving those processes can free cash from balance sheets and that way working capital can be put to more productive use.