The working capital is the life-blood and nerve centre of a business firm. The sufficiency of working capital assists in raising credit standing of a business because of better terms on goods bought, lesser cost of manufacturing due to the acceptance of cash discounts, favorable rates of interest etc.
—No business can run effectively without a sufficient quantity of working
capital. It is crucial to retain right level of working capital. Finance
manager is required to decide the amount of accurate working capital.
—A business enterprise with ample working capital is always in a position to
avail advantages of any favorable opportunity either to buy raw materials or to
implement a special order or to wait for enhanced market status.
—Cash is needed to carry out day-to-day workings and buy inventories etc.
The shortage of cash may badly affect the position of a business concern.
—The receivables management is related to the volume of production and
sales. For escalating sales there may be a need to offer additional credit
facilities. While sales may ascend but the danger of bad debts and cost
involved in it may have to be considered against the benefits.
—Inventory control is also a significant constituent in working capital
management. The deficiency of inventory may cause work stoppage. On the other
hand, surplus inventory may result in blocking of money in stocks.
The overall success of
the company depends upon its working capital position. So, it should be handled
properly because it shows the efficiency and financial strength of company.