| Financial management can be divided into asset | | | | taken by competitors. The effect of unforeseen |
| management, i.e. investments and liabilities, i.e. sources | | | | demands on working capital should be factored in. |
| of financing. It is a common belief that a firm's | | | | There are certain advantages of working capital on a |
| resource cannot be maximized in the long run unless | | | | corporate basis. Cash generated at one location can |
| it survives initial hiccups. It is also common that a firm | | | | be well used at another. For this to happen |
| fails most often because they are unable to meet | | | | effectively, good linkages between production and |
| their working capital needs and as a result, sound | | | | billing, internal flow of cash and sound treasury |
| working capital management is a basic requisite for | | | | practices should be in place. |
| firm survival. | | | | Executives at the highest levels should rightly set the |
| What affects Working Capital Management: | | | | target and performance levels. This is necessary and |
| Generally organizations are more focused on cash | | | | will help in identifying and implementing strategies |
| and supply chain issues. On the other hand, external | | | | generating short-term cash. |
| issues like legal environment or internal matters like | | | | Dispute management system in a company should be |
| organizational structure and information system can | | | | effective especially in relation to customers. This is |
| significantly influence working capital. | | | | needed in freeing up cash otherwise locked due to |
| Due to market pressure, companies are misled to | | | | disputes. It will also improve customer relation and |
| paying a lot of attention on presenting good quarterly | | | | free up legitimate activities like sales and cash |
| results month after month. Undue focus on this issue | | | | collection. |
| may sometimes lead to flattering but inaccurate | | | | So, working capital is an important tool to measure a |
| picture of working capital performance. | | | | company's operational and financial efficiency. This |
| Measures to improve Working Capital: | | | | aspect must be incorporated in the company's |
| Proper cash flow forecasting is the main issue of | | | | strategic and operational thinking. Efforts should |
| effective working capital management. This should | | | | always be made to improve company's working |
| take into account the impact of unforeseen events, | | | | capital, which in the long run, would grow into a |
| market cycles, loss of customers and strategies | | | | better customer relationship. |