What factors would increase the amount of working capital a company needs?

Above question has been asked by student of Aldine School District, Houston, Texas, United States.

Solution

If you look back on my previous article “working capital management", you will find that every company wants to reach optimum level of working capital where both profitability and risk will be balanced. If you think that your working capital is low that required for optimum level, then you can increase the amount of working capital by changing its main factors.

1st Factor


To increase cash and bank balance

These show liquidity of business and by increasing this amount of working capital will also increase. How can increase our cash? Try to sell goods on cash basis by applying strict credit policy. Try to sell scrapped material and assets of business.

2nd Factor


To decrease Current liability

Never forget to pay your current liability timely. With this, your current liability will decrease and you working capital will automatically increase. Just keep an eye on all current liability and see how can we pay it and from what way. Sometime fast payment, you can earn money of discount received.

3rd Factor


Keep track of Advance and outstanding expenses

Sometime working capital is more affected from advance and outstanding expenses. Try to minimize both.

By applying good technique and using above factors, you can lend a hand for increasing working capital a company needs.