Working Capital Management

What is working capital management

Working capital management is a procedure that ensures the effective operation of the company with the best utilization of business current assets and liabilities. The main aim of managing your working capital is to monitor the assets and liabilities of the organization so that adequate cash flow can be maintained and the short-term goals of the business can be met. It assists in managing the planned and unplanned expenses and determines the efficiency of the business by maintaining liquidity.

Importance of working capital management

Business needs enough cash flow to run its daily operations such as making payments, purchasing raw materials or managing unforeseen expenses, if any. Working capital is instrumental in fulfilling these requirements of the business and also serves as the report card for the company’s financial health.

Proper working capital management facilitates the business to operate smoothly and improves its earnings. It includes the proper management of inventory, account receivables and account payables so that enough cash is available for routine operations. It is an accounting strategy that not only helps businesses to meet their financial obligations but also enhances its earnings. It also helps in identifying the areas of the business that requires attention to maintain profitability and liquidity.