MSG Team's other articles

11043 Risks Covered by the Disaster Recovery Plan

In the highly competitive world of business and marketing, Organizations are pushed to be ahead of the race and walk the talk. Customer and Market expectations are higher where in the Companies are expected to walk the talk and demonstrate their capability to live through the promises. In such situation, Organizations have had to think […]

10048 Is Israel Really an Economic Miracle?

Israel is one of the youngest countries in the world. It has been in existence for only 72 years. While many of its peers such as India and Pakistan are still developing nations, Israel has quickly climbed the ladder. Israel is not considered a developed nation. This is because the per capita income in Israel […]

9634 How Information Technology can Enable Governance in Developing Countries

The Problems of Governance in Developing Countries Governance is a problem in many Third World countries where the structures and the systems of governance are slow, archaic, and bureaucratic. Moreover, many developing countries do not have processes in place that would ensure reliable delivery of public services. For instance, take the example of the Asian […]

11267 Should Corporates Implement Affirmative Action as a Means of Ensuring Social Justice?

What is Affirmative Action and does it Help or Hinder the Goals of Social Justice? The United States has a policy of what is known as Affirmative Action on campuses across the country to actualize Social Justice and to empower historically disadvantaged and disaffected communities. Affirmative Action is a term which indicates how members of […]

12196 Production Module – Subcontracting and Materials Issue

Production Order Subcontracting – In the age of production outsourcing and the organizational focus on their core competency, subcontracting of production orders is assuming greater importance. In addition to the business functionality necessary for producing goods in house, sub contraction operations necessitates some additional business process such as generation of sub contracting purchase order. Sub […]

Search with tags

  • No tags available.

Introduction

Businesses require adequate capital to succeed in business environment. There are two types of capital required by business; fixed capital and working capital. Businesses require investment in asset, which has to be utilized over a longer period of times. These long-term investments are considered as fixed capital, e.g. plant, machinery, etc.

Another type of finance required is short term in nature. This short term finance or capital is required to undertake day to day operation. Such short capital is called current capital or working capital.

Working capital refers to company’s investment in short term asset such as cash, inventory, short term marketable securities and account receivable.

Information technology is playing a big part in today’s working capital management. Several aspects of working capital management like the cash management, inventory management, account receivables/payable management, etc. are managed through enterprise resource planning modules.

Cash Management System

The cash management module within the working capital management system should be fully integrated with other modules like account receivable/payable, payroll and general ledger. The main features of cash management tools are as follows:

  • The module tracks complete audit trails of all transactions and adjustment for controls.
  • It highlights current and future balances for all cash accounts.
  • The module has the capability for complete drill down to the source of all transactions.
  • The module provides full bank reconciliation.
  • It allows export of information for analysis, forecasting, presentation, reports, etc.

Inventory Management System

Inventory management and control module is utilized by companies to avoid product overstock and outages. There are several components of an inventory management tool such as order management, asset tracking, product identification, etc. The main purpose within the inventory management system is to reduce the overall costs of carrying. An inventory management tool helps in:

  • Sustain a balance between too less and too much inventory.
  • Track inventory between locations.
  • Track inventory been received at warehouse.
  • Track product sales and finished goods inventory.

The main advantage of an inventory management tool is cost savings, increased efficiency, warehouse management, etc.

Account Receivable Management

An account receivable management tool helps solve critical question like when payment is due, how much payment is due, etc. The main features of account receivable tool are as follows:

  • Permits transfer of account receivable information for analysis, forecasting, presentation, reports, etc.
  • Maintain complete customer information, including sales history, current balance, open deposit, last payment, etc.
  • Minimize data entry errors and permit print invoice, credit memos, debit memos, etc.

Appropriate credit policy is essential to maintain the cash flow cycle and return on capital.

Short Term Financing

Another important aspect of working capital management is short term financing. The short term financing tool based on cash flow cycle, inventory position and requirement helps in deciding the quantity of capital required. It also helps identify the term of financing and track payment.

Working capital management decision directly affects day to day business operations. One of the such factors is the cash conversion cycle which immediately affects the liquidity of the organization.

Article Written by

MSG Team

An insightful writer passionate about sharing expertise, trends, and tips, dedicated to inspiring and informing readers through engaging and thoughtful content.

Leave a reply

Your email address will not be published. Required fields are marked *

Related Articles

Components of Commercial Value Chain

MSG Team

The Changing Face of Business Environment

MSG Team