More cash funds through working capital management
The efficient management of working capital may bring even considerable changes to the amount of money available to the company. Used correctly, it can have a major impact on the company’s operations.
Working capital means the amount of money tied up in the company’s business operations. Working capital management refers to funds that will be realized in the company’s cash in the future but which are currently tied up in receivables or used for purchases that will create revenue. Payments have, therefore, already been made to suppliers before the payments for the sales of purchased goods have been received. To put it simply, we can think of the monetary relationship between accounts payable and sales receivables.
Working capital affects the short-term liquidity of the company in every way. It depends on the amount of money realised as cash which invoices can be paid, which investments can be made at the moment, how much debt can be repaid and how much money can be paid out to shareholders. Even if there is a large amount of future money in sales receivables, it cannot be used for purchases and other expenses before it is realised as cash. Large, positive changes can be made here by effectively managing the existing working capital.