Managing working capital: it depends upon the type of retail business?

Why a good working capital management is so important?

To really understand the importance of a good capital working management, we first have to know what working capital and working capital management are. Working capital is the term given to the difference between current assets which can include sticks of raw materials, work-in-progress and finished goods, debtors, short-term investments and cash; and current liabilities which can include trade creditors, overdrafts and short-term loans. The purpose of working capital is to finance needs of companies because there is a lag between the dates of cash inflows and outflows. Actually, a company generally has to advance expenses to put orders into production, orders that will be paid, at best, when customers will receive orders. That is why it is so important to have sufficient resources to allow the continuity of business activity.

Working capital management is a decision-making strategy in order to secure the development of a company, to increase the profitability of a company and to ensure that it has sufficient liquidity to meet short-term obligations as they fall due and so continue in business. To help take these decisions, companies have to implement clear policies for different components of working capital like the management stack, debtors, cash and short-term investments. But many working capital decisions are straightforward since they tend to be repetitive. So, companies have to create some rules to help the management make some decisions easily. For example, each time a customer seeks to buy goods on credit, a decision will be needed as to whether to grant credit at all and if so how much. So, if there are rules which explain how take these decisions, employees can make them, they don’t have to ask their boss all the time, so this is a gain of time and of money. But, companies have to be careful; they have to often review