¶ … chief financial officer must pay close attention to receivables is no surprise to anyone. Receivables are an important potential source of money that can easily be converted into profit, just as easy as it can be lost forever. Management or recovery costs are also to be considered, since they can have a significant impact on the cash-flow creation process.
Beside well-known financial aspects, there are also other effects inefficient accounts payable/receivable management policies may produce on a company: Excessive receivables can both highlight and mask an insidious series of conditions that affect the health and growth of the business. (Sklar, 1998)
In every company there is some sort of conflict between the credit and the sales department. The credit department is responsible for collecting receivables in a swift manner and for not allowing sales that would later cause the company to have collection difficulties. On the other hand, the sales department is pushing for attractive compensation to sales people, wining out over competitors or meeting desired quotas. Questionable sales are often an issue, since the prudent credit personnel is not willing to face any risks, while sales people take a different approach.
Consequently, a company has to have clear policies regarding payments from customers and clients. Authors indicate that such policy should be in writing, strongly upheld by top management, consistently communicated to all clients and to all people in the business with relevant responsibilities. Otherwise, the results are irritation by customers and confusion within the company. This has an impact on profits and the general health of the business. Correction of these problems should be sought in two different places: preventing future potential payment problems and recovering the majority of current receivables at the lowest possible...
Working Capital George has the sort of basic working capital practises one might expect from a small business. He keeps his inventory levels low during the slower months, but then ramps up inventory a little bit in advance of the busier months. George does seem to understand that the business is a little bit cyclical, and that he does not need to have massive inventories of any given item. So his
Lawrence Sports Working Capital Management Lawrence Sports is a manufacturer of sporting goods facing a fiscal dilemma in the early spring of 2011. Between the months of March and April, the company would experience an impasse within the context of its Current Cash Conversion Cycle. Here, an improved strategy for working capital management is called for. First, with respect to the cash conversion cycle, Lawrence Sports largely draws is working capital from
Management System -- Working Capital Management Working Capital: Theoretical Construct & Contribution to the Effectiveness to Advance Financial Management Practice This work examines working capital and its theoretical constructs and contributes to the Effectiveness to Advancce Financial Management Practice. The term 'working capital' is reported in the work of Seidman (2004) to have several meanings "in business and economic development finance. In accounting and financial statement analysis, working capital is defined as
Capital Financing Financial planning and working capital management are two processes that enable capital financing in business. Financial planning uses projections and calculations to determine investment requirements where working capital management enables flexibility in business cash flow that meets the needs of the business. Marketable securities are good sources to park cash and enable that cash to raise capital to meet future business needs. It is important to consider appropriate diversity
Working capital provides an important indication of a firm's short-term financial health. Calculated as the difference between current assets and current liabilities, working capital tells whether an organization is able to cover its short-term liabilities (Sagner, 2010). If current liabilities exceed current assets, then it means a firm may have difficulty meeting its financial obligations in the next 12 months. Firms avoid such a scenario by effectively managing cash flow,
Working Capital If Starbucks has an increase of 20% in its revenue next year, this will affect a number of other elements of the financial statements. Often in budgeting, other line items are assumed to increase roughly in line with revenues. Thus, the company will see revenues of $11,558.4 million next year. Operating expenses will increase by the same percentage, so that the operating profit will also be increased by 20%
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