Checklist for working capital management

Checklist for working capital management

Checklist: 10 questions for working capital management

Working capital management revolves around inventory, debtors and creditors. Some companies generate cash so quickly that they can even achieve negative working capital. Supply Chain Media and software vendor Slimstock have developed this checklist for working capital management.

Working capital needed

Working capital is the amount of cash needed for the day-to-day business, i.e. to finance the conversion of raw materials into finished products that the company can sell and to bridge the period until customers pay for those goods. Negative working capital is when a company receives payment for products sold quicker than it has to pay its own suppliers. An important aspect of working capital is the inventory risk due to products with a limited shelf life perishing or due to obsolete stock.

Inventory turnover days

Inventory turnover days are used as an efficiency ratio based on the average number of days an item spends in stock before being sold. The working capital is tied up in stock for that time. The inventory turnover days are calculated based on the cost of goods sold rather than revenue.

Cash conversion cycle

The cash conversion cycle is the number of days from the moment that a purchase order is paid until the moment that payment of the associated sales invoice is received. The company must use its own resources to fund the stock in the interim period. One important calculation is ‘Earn x Turn’, a product’s margin multiplied by the annual number of stock turns.

Answer the 10 questions below to discover how well your supply chain department manages working capital.

Download: Checklist for working capital management