Impact of Recession on Working Capital Requirements of a Company

1088 WordsOct 8, 20125 Pages
Impact of Recession on Working Capital Requirements of a Company Working Capital Management is a managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other. Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses. Implementing an effective working capital management system is an excellent way for many companies to improve their earnings. The two main aspects of working capital management are ratio analysis and management of individual components of working capital. Ratio analysis will lead management to identify areas of focus such…show more content…
Measures adopted by companies to improve working capital position: Improve existing working capital processes (eg. standardise, reengineer, automate) Negotiate better terms with buyers and suppliers Improve information systems internally (eg. acquire new technology or applications) Provide better sales and collections support for foreign operations Provide financing support for operating entities (eg. “internal bank”) Integrate more transparently with external information systems (e.g., suppliers, banks) Outsource working capital processes or move to shared services centres Provide financing support for suppliers (i.e., supply chain financing) Sell or discount receivables using a bank Best Practices to Improve Working Capital Management: Many organizations are currently re-examining their working capital metrics, looking to uncover untapped sources of cash. CFOs, controllers, and treasurers are investigating new procedures and systems to enable a leaner back-office. But they still want access to fast, actionable information about current and future cash flows and working capital requirements. Included in best practices are those that centre on streamlining the accounts payable and accounts receivable function. 1. Centralize and standardize financial transaction processing to drive maximum efficiency and to draw meaningful
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