A business' investment in current assets has to be funded somehow so it pays to keep the level of assets as low as possible. This presentation looks at how that can be done and explains how that affects a lender's risk.

1. Managing current assets
from
businessbankingcoach.com
in association with

2. Effective working
capital management is
all about keeping the
investment in the
current assets under
control so as to
minimise the amount
of funding required.

3. So what does
“keeping the current
assets under control”
actually mean in
practice?

4. In this context there are really only two
current assets that can be managed and
which have a significant impact on cash

5. In this context there are really only two
current assets that can be managed and
which have a significant impact on cash
Stock
(inventory)

6. In this context there are really only two
current assets that can be managed and
which have a significant impact on cash
Stock
(inventory)
Trade
debtors
(accounts
receivable)

7. Stock (inventory)
Managing stock is
always a fine
balance between
having enough to
meet customer
demand and having
too much that just
sits on the shelves or
in the warehouse

8. When it comes to
managing stock,
businesses should
seek the optimum
level of stockholding,
not the minimum
level – running out of
stock could be
disastrous

9. Some reasons for business to hold a lot of stock

10. Some reasons for business to hold a lot of stock
The stock comes from a far away country
and takes a long time to get here

11. Some reasons for business to hold a lot of stock
The stock comes from a far away country
and takes a long time to get here
The stock may soon be going up in price

12. Some reasons for business to hold a lot of stock
The stock comes from a far away country
and takes a long time to get here
The stock may soon be going up in price
The stock is in short supply generally

13. Some reasons for business to hold a lot of stock
The stock comes from a far away country
and takes a long time to get here
The stock may soon be going up in price
The stock is in short supply generally
The stock is much cheaper if bought in bulk

14. Some reasons for business to hold a lot of stock
The stock comes from a far away country
and takes a long time to get here
The stock may soon be going up in price
The stock is in short supply generally
The stock is much cheaper if bought in bulk
There is only one supplier of the stock and
the supplier has all the bargaining power

15. But that’s only okay if
the stock is not
perishable – there are
lots of reasons why
stock levels should be
kept low too

16. Some reasons for business to hold very little stock

17. Some reasons for business to hold very little stock
The stock comes from a local supplier and
takes a very short time to obtain

18. Some reasons for business to hold very little stock
The stock comes from a local supplier and
takes a very short time to obtain
The stock may soon be going down in price

19. Some reasons for business to hold very little stock
The stock comes from a local supplier and
takes a very short time to obtain
The stock may soon be going down in price
The stock is easily available from a range of
suppliers – the suppliers have little bargaining
power

20. Some reasons for business to hold very little stock
The stock comes from a local supplier and
takes a very short time to obtain
The stock may soon be going down in price
The stock is easily available from a range of
suppliers – the suppliers have little bargaining
power
The stock is likely to become obsolete (e.g.
electronics)

21. Some reasons for business to hold very little stock
The stock comes from a local supplier and
takes a very short time to obtain
The stock may soon be going down in price
The stock is easily available from a range of
suppliers – the suppliers have little bargaining
power
The stock is likely to become obsolete (e.g.
electronics)
The stock is perishable and will soon
deteriorate

22. Some reasons for business to hold very little stock
The stock comes from a local supplier and
takes a very short time to obtain
The stock may soon be going down in price
The stock is easily available from a range of
suppliers – the suppliers have little bargaining
power
The stock is likely to become obsolete (e.g.
electronics)
The stock is perishable and will soon
deteriorate
The stock has to be insured and warehoused
adding expense to the business

23. Trade debtors (accounts receivable)
Managing trade debtors is
always a fine balance
between allowing
reasonable credit
terms in keeping
with the norm
in the specific
industry and …

24. ……….collecting from them
when payment is due without
annoying them and driving
them to the competition

25. Businesses are more likely to take a soft
approach to collecting from trade debtors –
especially when the economy is struggling
and customers are not easy to find

26. Maybe this
isn’t a
good idea

27. So businesses that
have to hold higher
levels of stock and
are reluctant to
collect from trade
debtors ……

28. …..are the ones that
have the most
invested in working
capital and usually
need significant
overdraft facilities

29. We do hope that you enjoyed this presentation.
For more commercial and business banking content,
please visit our website at
www.businessbankingcoach.com
where you can subscribe to our blog, listen to our podcasts
or view and download our other Slideshare presentations.
If you have any questions about this presentation
or any of our other content, please send us an email at
support@businessbankingcoach.com