Working capital involves your firm's current assets and current liabilities. It covers your inventories, accounts receivable, accounts payable and cash. By efficiently managing your working capital, you will be able to tap the cheapest and best sources of cash within your business.A large portion of your funds may be sitting idle in the form of accounts receivable and inventories of raw materials, finished goods, and goods-in-process. Time is money. It will be to your advantage if you can get your funds to move faster (e.g., speedup collection of receivables) or reduce the amount of money tied up in inventories.If you succeed in doing these things, you will have less need to borrow money to fund your working capital requirements. If you can negotiate better terms with your suppliers - for instance, longer credit terms or increased credit limits - you effectively create free financing. Consequently, you will not have to borrow money and take on additional interest expenses.
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