Working capital management

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Working capital management it is a company strategy tailored towards the management of the current assets and the current liabilities to ensure efficient operation regarding finance for the organization. The working capital aim is to guarantee that there is sufficient cash flow for financing the short-term obligations of the organization (Szpulak, 2015). The paper will focus on the following two components of working capital, i.e., management of inventories and credit policies. Credit policies these are policies related to how organization extends credits to customers.

The organization can follow a stringent credit policy or lenient policy. While establishing credit policies, it is essential to define the credit terms for the customers. The credits terms and condition can be either long or short depending on the organization for example 2/10 and N/30 credit policy. The credit term means if the customers pay, the credit within the ten days the customers granted 2% discount of the total sales. The second one says that the customer expected to settle the debt within a span of 30days. Credit policies are essential in minimizing the doubtful liability for the organization, which can result in its liquidation (Kumar & Srivastav, 2011). The HSBC bank in Australia credit policy has enabled the bank to offers loans to customers since it stipulates all the requirements.

The banks make an informed decision upon review of the creditworthiness of the customers. Management of inventories is essential to practice with any organization. The stock is item convertible into cash with a short a period. The inventories managed in an organization are the raw materials, work in progress and the finished goods. Various techniques used by the organization to manage inventories. The methods used are economic order quantity. The technique aims at minimizing the total costs. The procedures establish the total costs, the reorder levels holding costs and the number of orders to place. The inventory management applied in manufacturing companies like the Microsoft, apple companies. The companies are in a position to manage their inventories.

References

Kumar, A., & Srivastav, D. (2011). Working Capital Management: Backbone of the Company. Indian Journal Of Applied Research, 3(10), 1-2. doi: 10.15373/2249555x/oct2013/69 Szpulak, A. (2015). Evaluating net investments in the operating working capital under certainty: The integrated approach to working capital management. Business and Economic Horizons, 11(1), 28-40. doi: 10.15208/beh.2015.

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