What Is Short-Term Working Capital?

Working capital is also called "utilized capital". It is called working capital abroad. It is the net amount of the total current assets of the joint venture minus the total current liabilities, that is, the net amount of working capital available to the company in its operations. Since working capital is the net amount of current assets minus current liabilities, changes in current assets and current liabilities will cause changes in working capital. If current liabilities remain unchanged, an increase in current assets means an increase in working capital; a decrease in current assets means a decrease in working capital. If the current assets remain unchanged, an increase in current liabilities means a decrease in working capital; a decrease in current liabilities means an increase in working capital. In the case where the two change at the same time, only the net amount of the two after offsetting is the net increase or decrease of the working capital. In general, only one economic business that involves current assets or current liabilities and the other involves non-current assets or non-current liabilities (such as long-term liabilities, long-term investments, capital, fixed assets, etc.) will enable operations Funds increased or decreased. Both parties are involved in the economic business of liquid assets or current liabilities, that is, business that occurs between internal projects of working capital, and will not cause working capital to increase or decrease. ^[1]

Working capital

Working capital is a general term for a company's current assets and current liabilities. The balance of current assets minus current liabilities is called net working capital. Working capital management includes current asset management and current liability management.

Current assets refer to assets that can be realized or used within one year or an operating cycle that exceeds one year. Current assets have the characteristics of short occupation time, fast turnover, and easy realization. Enterprises with more current assets can reduce financial risks to a certain extent. Current assets in

The working capital formula is:

Working capital = current assets-current liabilities = (total assets-non-current assets)-(total assets-

1 Turnaround time is short. According to this feature, it shows that working capital can be

Working capital can be used to measure the

Working capital management is the management of corporate current assets and current liabilities. An enterprise must have an appropriate amount of working capital to maintain normal operations. Therefore, working capital management is

1.The working capital is too large,

Enterprises should follow the following principles when working capital management:

(I) Ensure reasonable funding requirements

The management of working capital must take meeting normal and reasonable funding needs as the first priority.

(2) Improve the efficiency of fund use

(3) Saving capital use costs

(4) Maintaining sufficient short-term debt service ability

From the perspective of accounting, working capital refers to the net amount of current assets and current liabilities. At the same time, companies must adhere to the above four principles when working capital management. At the same time, working capital refers to current assets less current liabilities Etc.) after the balance.

Working capital raising policy refers to how to arrange the source of funds for temporary current assets and permanent current assets. ^[2]

Strengthening working capital management is to strengthen the management of current assets and current liabilities; it is to accelerate the turnover rate of cash, inventory and accounts receivable, to minimize the excessive occupation of funds and reduce the cost of capital occupation; to use commercial credit to solve short-term capital turnover Difficulties, while borrowing from banks at the appropriate time, using financial leverage to improve the return on equity capital.

Working capital hedges

In order to realize profits and sell more products, many companies often use the form of credit sales. The one-sided pursuit of sales performance may neglect the management of the corresponding receivables and cause low management efficiency. For example, the lack of control over the cash flow and credit status of credit sales, and failure to promptly collect payment, it is prone to the phenomenon that the default of the payment is higher than the actual capital. In this regard, the financial department should strengthen the control of credit sales and pre-purchase business, formulate corresponding accounts receivable and pre-payment control systems, strengthen the management of corresponding accounts, collect and respond to accounts in a timely manner, reduce risks, and increase corporate funds. Use efficiency.

Working capital adds value

Accounting profit is the result of the ratio of current income and expenses to costs. At any income level, enterprises must do a good job of controlling internal costs and expenses, and do a good job of budgeting, strengthening management, and reducing unnecessary expenditures, so as to increase profits and increase enterprise value.

Working capital improves efficiency

Financial management should be based on the overall perspective of the enterprise, build a scientific forecasting system, and carry out scientific budgeting. The budget includes sales budget, purchase budget, investment budget, labor budget, cost budget, etc. These budgets enable enterprises to predict risks, obtain various information of funds in a timely manner, and take timely measures to prevent risks and improve efficiency. At the same time, these budgets can coordinate the work of various departments of the enterprise and improve the efficiency of internal collaboration. In addition, under the guidance of sales and expenses, the sales department can have a certain understanding of the market in advance, grasp market changes, and reduce the market risk of inventory.

Improved working capital system

Clear Internal Management Responsibility System Many companies think that collection of payment is a matter for the financial department and has nothing to do with the sales department. In fact, this is a wrong view. In fact, sales staff are primarily responsible for collecting receivables. If the salesperson is also responsible for collecting and responding to receivables when providing credit for sale, then he will treat each receivable with caution.

Enterprises that establish customer credit files should set up risk controllers in the financial department, conduct in-depth investigation and filing of the credit situation of suppliers and customers through the risk controller, and set credit levels to implement different credits for customers at different levels. Policies to reduce purchase and credit sales risks. Risk administrators can assess the credit rating of customers from the following aspects: inspection of the registered capital of the enterprise; credit status of the repayment of the account; records of fines for non-payment of taxes; whether there is arrears of payment by the supplier; other enterprises Comprehensive evaluation. The risk manager reports the situation to the general manager based on the inspection results, and then the risk manager, the manager of the financial department, the manager of the sales department, and the general manager discuss the amount of credit for the payment to each supplier and customer after discussion. If more than the approved amount of credit is provided, the salesperson must obtain special approval from the financial manager, risk manager and general manager. If approval cannot be obtained, the sales staff can only reduce the credit scale or abandon this business, so that they can control a large number of bad debts in sales and reduce risks.

Strictly controlling the credit period shall stipulate the collection time of the accounts receivable, and write these credit terms into the contract to bind the other party in the form of a contract. If the other party fails to collect the response payment within the prescribed time, the enterprise may take legal measures against the defaulted payment company in accordance with the contract and promptly recover the payment.

Encourage arrears companies to repay their debts within a specified time through credit discounts. The reason why many companies fail to repay their debts in a timely manner is because they do not receive any benefits in a timely manner, and arrears have no effect. This situation leads to inefficient collection of accounts receivables. In order to improve this situation, enterprises can take corresponding incentive measures and give certain credit discounts to companies that actively return money.

Implement the approval system to implement different approval levels for different credit scales and credit objects. Generally, a three-level approval system can be set up. Audited by sales manager, financial manager, risk manager and general manager. If the sales department adopts the credit sales method, the financial department should first measure the economic benefits and the cost risks arising from the credit sales, and submit it to the general manager for review when feasible. This can improve the efficiency of decision-making and reduce the risks of business operations.

Strengthen remedial measures Once the payment default occurs, the finance department should require sales staff to step up collection of the payment, and at the same time the risk manager should lower the credit rating of the enterprise; if the default is serious, the sales department should order the sales staff and the enterprise to cancel the purchase and sales business.

The establishment of an enterprise internal control system mainly includes a series of control systems such as inventory, accounts receivable, cash, fixed assets, and management costs. Violation of the control system shall be punished by those responsible. Strictly control expenditures, and adopt planned cost accounting for various expenditures. Strict control measures must be taken for various expenditures that are prone to waste. For example, many enterprises' business entertainment expenses account for a large proportion of management expenses, which results in that some entertainment expenses cannot be deducted in full before taxation. In this regard, enterprises should require sales staff to control hospitality expenditures, and the financial department should determine the appropriate hospitality standards based on monthly sales revenue.

In short, working capital management plays an important role in corporate sales and procurement, and will have a significant impact on the achievement of corporate profit goals. Working capital management should be the control of sales rather than restrictions, and its purpose is to promote sales departments to reduce sales risks and increase profit levels. Therefore, business leaders should pay attention to the management of capital operations of enterprises.