Cash is king and so is your working capital. Poor working capital management can make you go out of business in the blink of an eye even though if you have the best product or the most loyal customers.

1. WORKING CAPITAL MANAGEMENT
Sound working capital management is crucial in maintaining the company’s
liquidity and profitability. The fundamental principles of working capital are
clear: increase stock turnaround and reduce collection days whilst increasing
creditors aged days.
With a growth in business or boom in the industry, the C-suite executive tend
to forget about the balance sheet and cash flow management. This have led to
capital being tied up in inventory and receivables.
The points below highlight some of the failures in improving working capital:
 Managers are held accountable for bottom line results and their rewards
are linked to profitability ratios and not balance sheet indicators.
(Example Sales commission for sales volume and gross margin. However,
no rewards linked to debtors aged days).
 Linking profit with cash. Business drivers with poor working capital often
tend to implement strategies in order to improve simultaneously both
working capital and profit. However, in the short term, this is not feasible
unless there is a new market development or product development.
 Supply Chain: Procurement managers have as primary objective to
negotiate for lower costs of purchase in order to maximize margin.
However, very often there are hidden costs associated with the decrease
in costs of purchase. Example (a) Bulk purchase for volume discount
leading to an increase in stock and warehousing costs (b) possible
reduction in payment terms which leads to an increase in finance costs
(c) obsolete stock.