Define Working Capital - Research Paper Example
Creditors that supply raw materials and ask payments after a few days or weeks provide leverage to the organization and reduce its working capital requirement. On the other hand, when the company buys raw materials on cash payments, it needs more working capital to run its business.
Similarly, when the company sells its finished goods on cash against delivery, the working capital requirement gets reduced; in contrast, when the company sells its goods on credit and receives payments after a few days or weeks, the firms working capital requirement gets enhanced. Therefore, to get the raw material supply on credit with delayed payments and to sell the goods on cash is the most idealistic strategy to have the minimal requirement of working capital particularly, when the firm is short of working capital funds.
We just sent you an email. Please click the link in the email to confirm your subscription!
OKSubscriptions powered by Strikingly