Working Capital Cycle (WCC)

Like the saying goes, 'cash is king'. A business can be profitable and not liquid (lack of cash) and if illiquidity persists bankruptcy becomes inevitable. Put in another way, cash is the operating software that drives your business hardware (profit). Check out most valued companies, e.g. NSE 30 firms or Fortune 500 you will discover that liquidity and profitability are positively correlated. Your business success not only depends on profitability but also on your cashflow.

This thus brings us to the concept of working capital cycle (WCC). WCC is simply the number of days it takes your business to convert net current assets (stock plus trade debtors less trade Payables) into cash. The shorter your WCC, the better for your firm. Longer WCC simply means that a lot of your firm’s resources are lockdown in inventory and trade debtors and perhaps little trade little credit period is offered by your trade suppliers.

Therefore, to improve your firm’s WCC, that is, reduce the number of days to get cash into your business, you must work on these monsters - inventory, debtors and creditors. Too large or too little inventory level has implications on your operations and costs implications. Firms should aim at economic order quantity #EOQ when ordering stock so that payment pressure from suppliers will be minimized. #Creditterms needs to be well defined so that your customers know the expected time that they must fulfill their debt obligations. And for your creditors, bargain as much as possible for longer repayment period.

Good accounting software like #quickbooks and technical support from seamless accounting solution #sasng in your working capital management couldn’t be a bad idea. We are here to #backyou as your business partners.

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Working Capital Cycle (WCC)