Managing the working capital for optimal results | The Guardian Nigeria News - Nigeria and World News

The difficulty is both in terms of the exorbitant cost of borrowing and the availability of borrowing funds. The problem notwithstanding that companies must continue to operate and only require a chunk of finance to operate. The need to continue operation vis-a-vis the suffocation experience in finance sourcing now leads to companies looking more critically inward as a bailout of the situation. One of the various ways of looking inward is managing working capital to achieve the best possible.

In the economists ‘view, cash management will also bring out the requirements, considering the three fundamental reasons for holding money. That is for transactional precautionary and speculative purposes. The need to conform with this standard is seen in inflation, with every index of economic activities fluctuating. Proper cash management, therefore, keeps the company stable even in the face of helpless uncertainty.

Having this in mind, therefore, a credit policy is usually put in place, stipulating the maximum period of credits allowed customers. It should be borne in mind that in some kinds of businesses, credit sales are unavoidable. The customers play an essential role in ensuring that the goods produced get to the final consumers. The essential linkage provided by the distributors allows them to enjoy the benefits of being given a future date to pay for the goods supplied to them.

These factors are at what level is most economical to order, otherwise known as economic order quantity which is a balancing of various cost elements such as carrying cost , ordering cost , the benefits of bulk purchase, the conditions of stock in terms of the durability of storage as well as the adequate requirement of the company. Today, where the logistics are effective, Just-In-Time has replaced the rigors of EOQ.

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