Looking for a business loan


Thank you for your interest, our team will get back to you shortly

Please Fill the Details to download

Thank you for your response

Get Expert Assistance

Thank you for your response

Our representative will get in touch with you shortly.



Working Capital Management

Updated on :  

08 min read

Management of working capital refers to using of various strategies that are adopted by the businesses to manage their current assets and current liabilities to ensure that the company can continue its day to day operations and clear its debt due on time. Let’s understand the working capital management through the article. You can read about:

Meaning of Working Capital

Working capital is the part of the company’s total capital. This capital is required by all the businesses for financing their short-term needs and is a part of current assets. It is the measure of the company’s efficiency to pay its short-term dues as well as manage operational expenses.

Working Capital Formula


Understanding Working capital management

Due to the relationships between different components of working capital, it is of utmost importance to manage a company’s working capital. Stock is purchased from suppliers on credit and the final product is sold on credit sometimes too. This generates accounts payables and receivables. The cash collected from the customers is used later to pay off the suppliers. There is clear rotation of funds here. It is very difficult to control the time within which the inventory will be sold and debtors will pay to the company. That is why controlling the rolling of cash and cash equivalents is very important.

Components of Working capital management

Inventory Management

Inventories basically include the raw materials, WIP products, and finished goods manufactured or bought from the suppliers. Where the company buys excessive stock, it places a heavy burden on the finances. Similarly, if the inventory isn’t available on time, it will lead to the loss of sales. Therefore, inventory management involves the control of the stock that is manufactured/ bought for sale in the normal course of business.

Accounts Receivable

Accounts Receivable refers to the amount that is due when sales take place and is allowed by the buyers to the seller while conducting business on credit. It is an anticipation of the payment that has to be received by the debtors within the time-period allowed for making the payment. The process of account receivable management requires effective and accurate handling to ensure the collection of accounts receivable in time. As accounts receivables form a major part of the company’s asset, it leads to the generation of cash in-flow for the business.

Accounts Payable

Account Payable can aptly be called a short-term debt payable within short periods of time and is treated as a current liability by the entity that has to make the payment. It is the money owed by the businesses to its suppliers for the goods purchased or services consumed. The accounts payable needs to be managed effectively as it enhances the short term cash flow position of the business. This can be done by deciding on an optimal timing for payments to the supplier.

Cash Management

Cash and Cash equivalents  is the most important current assets that be managed under working capital management. Being the most liquid form of asset, it has to be effectively and efficiently managed to maintain company’s financial stability ,meet the unexpected expenses and also handle the regular operational expenses on time (such as payroll). Further managing cash rightly also helps to maintain company’s’ rating and avoid insolvency. Here cash includes, both cash and cash equivalents.

All Articles

  1. Clear Max ITC offers a host of unique features that are proven to maximise ITC claims and unlock your working capital. Take a look.
  2. Effective working capital management is the key to success for any organisation. Here are 5 strategies to manage your enterprise’s working capital:
  3. Working capital management is vital to ensure that the company has enough liquidity to fund its short-term expenses. Take a look at the challenges.
  4. Working capital is vital for every business as it’s used to fund the day-to-day operations, meet short-term liabilities, and plan growth.
  5. Capital budgeting is a process of evaluating investments and huge expenses in order to obtain the best returns on investment. To know more, read here.
  6. Accounting rate of return (ARR) measures the expected profitability from any capital investment. Read more about ARR and its calculation here.
  7. Cash Management is the optimum utilization of cash and also refers to the proper collection, disbursement, and investment of cash. To know more, read here.
  8. In the double entry system of accounting a relationship between the 3 items of the Balance Sheet exists. This can be depicted in the form of the Accounting equation. Read the detailed analysis of this equation here
  9. Negotiable instruments are documents which promise payment to the person holding the instrument. Promissory notes, Bills of exchange, Cheques are its various kinds. Read here to know more. Know about the Negotiable Instruments (Amendment) Bill, 2017 in brief here.
  10. Working capital management is process of managing short-term assets & liabilities for smooth operation of a company. Know about working capital management formulas, applicability, analysis, ratio and much more.
  11. Accounts receivable is an anticipation of the payment to be received by the credit lending party within the time-period allowed to make the payment
  12. Inventory management software is used to track inventory levels, re-order points. Selection of ideal software depends upon inventory volumes, price
  13. There are inventory terms which used for inventory management like a stock on order, safety stock, Just In Time, Shelf Life, dock to stock
  14. Inventory management techniques include series of activities like ordering, receipt, storage, refill, issue etc through JIT, ABC analysis, FIFO LILO
  15. ABC analysis involves a system that controls inventory & is used for materials & throughout the distribution management. It is also known as SIC or ABC Method of Inventory Control & Management.
  16. Learn about how supply chain management strategies have gained prominence in the business organizational structures of today.. This article focuses upon SCM Tools, techniques & formulas.
  17. Learn about supply chain management, its elements and the main players in it. This article also focuses upon SCM applicability, requirements and opinions necessary for a business.