CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS TO BUSINESS

Working Capital Management Strategies
Working capital strategies has in the past been a responsibility designated to those managers in the accounting and finance departments. However, today’s economy is changing those roles and many managers who traditionally were not part of this process are being called upon to take proactive steps in reducing the risk associated with working capital.
Working capital may be a foreign term to some managers and so we should first begin by defining this term. Generally working capital represents those current assets such as cash, marketable securities, accounts receivable, inventory and pre-paid expenses. Furthermore net working capital would take the calculation further and reduce working capital by the current liabilities such as accounts payable, short term borrowings and accrued liabilities.
Understanding these terms is crucial because a company’s daily activities typically result in dramatic fluctuations in the accounts comprising working capital. The manager’s ability to anticipate the fluctuation and proactively make decisions to curtail the negative impact of such fluctuations will help maintain liquidity even in the toughest of circumstances.
A company’s ultimate long-term success is based upon all departments within the organization coming together to fulfill its business purpose or mission. The same ideology should be used in managing the company’s working capital strategies. As stated earlier, working capital comprises various accounts and to minimize risk appropriately the company should first identify what the largest asset comprising working capital is. Since the largest asset on a balance sheet for many companies typically is accounts receivable, we will use this as an example.
How does a company develop a working capital strategy and get