The Cycle Of Working Capital

1. Blog2: Horizontech.com The Cycle Of Working Capital Effective working capital management requires an understanding of the associated cycle. The flow of cash happens in a cyclic format as it flows in the business, around it and finally out. Maintenance of effective flow is quite important to generate profits. A profitable business must have surplus cash at least theoretically. In its absence, it will fail to function after some time. Faster the expansion more will be the cash need for investment and working capital. Best and cheapest source of monies within the business remains as working capital. Effective cash management strategies help generate it, reduce risks, and help to improve the profits. Expenses related to customer credit and the holding of stocks involves substantial portions of the total profits of a firm. Cash absorption in the cycle occurs through: receivables: debtors who owe you money inventory: work-in-progress, stocks Similarly, its main sources are: loans and equity payables Each of these components related to your working capital contains two-dimensions, namely- MONEY and TIME. In cases where the movement of money is quite fast across the cycle, naturally cash generation will also be more. Also for funding the working capital the borrowing requirements lessen. Reduce your expenses related to bank interests and enjoy free money availability for supporting investment and sales growth. It also gives you the confidence to negotiate with your suppliers and achieve longer credits with increased limits as well. Ensure smooth cash flow management and alleviate financial difficulties by contacting the experts at Horizontech.com.