Keep these four crucial working capital management points in mind to avoid a cash flow crisis

Simangele Mzizi, Fsp Business, 30 Oct. 2014

Tags: working capital management, cash flow, working capital

According to, working capital management is a managerial accounting strategy focusing on maintaining efficient levels of both components of working capital – current assets and current liabilities – in respect to each other.

Essentially, working capital management ensures your company has enough cash flow to meet short-term debt obligations and operating expenses. Because if you don’t pay attention to working capital management, you may have a cash flow crisis on your hands.

To ensure this doesn’t happen, keep these four crucial points in mind about working capital management.

******* Top rated product ********
Ten budget templates to forecast and manage your company’s costs

You can use them individually or while you create your operating budget. You’ll draw figures from these budgets so you can keep control of costs and maximise profit. Each budget chapter comes with a free Excel budget template for you to customise and use straight away.

Find out more here…


Four points to keep in mind about working capital management

1. Don’t overinvest in inventory or stock.
Remember, if you buy stock, but it doesn’t move quickly enough, cash (which you could use for essentials like your water and lights bill) is tied up unnecessarily
2. Always check the credit worthiness of customers.
It’s a good idea to ask new customers to give you two good references, including one from a bank, before you grant credit. In addition, check their credit ratings through a credit rating agency, says the Practical Accountancy Loose Leaf Service.
3. Always give customers statements and remind them to pay! After all, everyone knows cash is king.
4. Maintain good relationships with creditors.
The best way to manage creditors is to manage the relationship you have with them.
It’s best to keep the money in your bank account longer and pay out monies to creditors as late as possible so you can benefit from the interest. If you manage the relationship well, it also becomes easier to negotiate longer payment terms.
The bottom line: If you want to avoid a cash flow crisis, always keep these crucial points in mind about working capital management.

PS. Find out how to improve your cash flow and eliminate simple accounting mistakes.

Related articles:




RSS Facebook Share the experience
Accounting and Tax

  • Accounting
  • Allowances and deductions
  • Audit/Assessment
  • Capital gains tax
  • Dividends
  • Donations Tax
  • Exports and imports
  • Fringe benefits
  • Input tax
  • Provisional tax
  • Sars
  • Tax basics
  • Tax invoices
  • Tax returns
  • Vat basics
  • Vat registrations
  • Vat return
Premium Services
  • Company Registration
  • Objections
  • PAYE
  • Trusts
  • Turnover Tax
  • UIF
  • Wear and Tear
how to get my tax number online[read more]
Published on 16 Feb. 2018 1 answer
Need some help on correcting payslips taken over from outsourced payroll person. As soon as the company pays ANYTHING...[read more]
Published on 06 Feb. 2018 1 answer
Dear Sir, Please advise the CGT calculation in the following scenario: Close corporation with one member purchased...[read more]
Published on 18 Jan. 2018 1 answer
Video Archive Video club

Your library of Free eReports
View full library
SARS Tax Tables 2016/2017 Download

Simply click download for your FREE SARS Tax Tables 2016/2017 to ensure you calculate your tax correctly.