What Is Working Capital Management?

Working capital management is the management of corporate current assets and current liabilities. An enterprise must have a proper amount of working capital in order to maintain normal operation. Therefore, working capital management is an important part of corporate financial management.

Working capital management

Working capital management

Working capital management is the management of corporate current assets and current liabilities. An enterprise must have a proper amount of working capital in order to maintain normal operation. Therefore, working capital management is an important part of corporate financial management. According to the survey,

Ways to improve working capital management efficiency:

Strengthening working capital management is to strengthen

(1) Investment strategy for current assets.

1. Austerity

   Since the reform and opening up, Chinese enterprises have continuously absorbed advanced foreign management experience, and their management level has improved significantly. However, due to the long-term implementation of the planned economy, business management is relatively extensive, and it is limited by the knowledge, ideas, and experience of enterprise managers. As a result, domestic companies' methods and methods of working capital management still exist compared with those in developed countries The obvious gap. Mainly manifested in:

   1.Insufficient liquidity

   At present, China's enterprises generally suffer from a shortage of working capital and face working capital risks. As a manifestation of social resources, the shortage of funds, including working capital, is inevitable. However, this shortage of liquidity has exceeded the limits of rationality, and the existence of many unreasonable factors has seriously interfered with the operation of individual enterprises and the entire society as a whole.

   2. The turnover of liquid funds is slow, the quality of current assets is poor, and the proportion of non-performing assets is large

   The number of accounts receivable has generally increased, and mutual arrears are relatively serious. The average arrears time has increased, and a large part of accounts receivable is more likely to have bad debts. During the transition process of the planned economy and market economy, many companies lacked market awareness and blindly produced products, resulting in irrational product structures and poor competitiveness. The inventory of raw materials, finished products, and semi-products continued to build up, which took up a lot of capital.

   3. Unreasonable debt structure and high pressure on debt service

   The high proportion of current liabilities and the high-risk type of debt structure will inevitably lead to increasing pressure to repay principal and interest, and fall into a vicious circle of borrowing new debt to pay off old debt. The high debt ratio of state-owned enterprises was gradually formed under the specific historical conditions of our country. Under the planned economy system, the state implements direct financial allocations for the funds needed for enterprise construction. After that, all capital construction investments with national budget arrangements were changed from fiscal appropriations to bank loans, and "allocation loans were implemented." In this way, the renovation and reconstruction of existing enterprises, newly-built projects, and newly established state-owned enterprises all become debt operations, which directly results in excessive corporate debt ratios.

   4. Weak working capital management

   The chaotic management of working capital of enterprises and the lack of effective management measures and strategies are also one of the important problems existing in enterprises at present, and their performance is as follows:

   First, cash management is confusing. The strongest liquidity and the lowest profitability are the characteristics of cash assets. Excessive or insufficient cash is not conducive to the development of enterprises. In some enterprises, financial management institutions are inadequate, financial staffing is inadequate, and reasonable and feasible cash holdings have not been formulated. Cash management is very arbitrary, and there are often insufficient cash to pay for goods and various expenses or excess cash . This extensive cash management model cannot adapt to market competition trends.

   Second, accounts receivables are not tightly controlled, and fund recovery is difficult. The continuous increase in business income of many enterprises has not brought about a continuous increase in profits. The main reason is that the proportion of account receivables increased in the same period, and the ageing structure has become more and more deteriorating.

   Third, there is too much inventory. Most companies conduct management based on experience, lack scientific and reasonable inventory management methods, do not have a feasible inventory plan and effective regular supervision and inspection, and there is no corresponding responsible department. As a result, excessive inventory funds are occupied, resulting in stagnation of funds, high capital costs, Turnover is slow.

   Fourth, there are internal and external problems in short-term loan management. The cost of short-term bank borrowing funds is often higher than that of short-term financing bonds and commercial credit, while the financial department of most small and medium-sized enterprises does not verify and manage the use and amount of short-term borrowings. Difficulties in obtaining funds and lack of proper management of funds constitute internal and external problems of short-term borrowings, which can easily cause difficulties in the capital turnover of SMEs and even financial crisis.