Managing current assets
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The document discusses the importance of managing current assets, specifically inventory and accounts receivable, for effective working capital management. It highlights the balance businesses must strike between holding enough stock to meet demand and minimizing excess inventory, along with the considerations for trade debtors in maintaining cash flow. The presentation concludes by encouraging readers to explore additional resources on business banking from the associated website.
Managing current assets
- 1. Managing current assets from businessbankingcoach.com in association with
- 2. Effective working capital management is all about keeping the investment in the current assets under control so as to minimise the amount of funding required.
- 3. So what does “keeping the current assets under control” actually mean in practice?
- 4. In this context there are really only two current assets that can be managed and which have a significant impact on cash
- 5. In this context there are really only two current assets that can be managed and which have a significant impact on cash Stock (inventory)
- 6. In this context there are really only two current assets that can be managed and which have a significant impact on cash Stock (inventory) Trade debtors (accounts receivable)
- 7. Stock (inventory) Managing stock is always a fine balance between having enough to meet customer demand and having too much that just sits on the shelves or in the warehouse
- 8. When it comes to managing stock, businesses should seek the optimum level of stockholding, not the minimum level – running out of stock could be disastrous
- 9. Some reasons for business to hold a lot of stock
- 10. Some reasons for business to hold a lot of stock The stock comes from a far away country and takes a long time to get here
- 11. Some reasons for business to hold a lot of stock The stock comes from a far away country and takes a long time to get here The stock may soon be going up in price
- 12. Some reasons for business to hold a lot of stock The stock comes from a far away country and takes a long time to get here The stock may soon be going up in price The stock is in short supply generally
- 13. Some reasons for business to hold a lot of stock The stock comes from a far away country and takes a long time to get here The stock may soon be going up in price The stock is in short supply generally The stock is much cheaper if bought in bulk
- 14. Some reasons for business to hold a lot of stock The stock comes from a far away country and takes a long time to get here The stock may soon be going up in price The stock is in short supply generally The stock is much cheaper if bought in bulk There is only one supplier of the stock and the supplier has all the bargaining power
- 15. But that’s only okay if the stock is not perishable – there are lots of reasons why stock levels should be kept low too
- 16. Some reasons for business to hold very little stock
- 17. Some reasons for business to hold very little stock The stock comes from a local supplier and takes a very short time to obtain
- 18. Some reasons for business to hold very little stock The stock comes from a local supplier and takes a very short time to obtain The stock may soon be going down in price
- 19. Some reasons for business to hold very little stock The stock comes from a local supplier and takes a very short time to obtain The stock may soon be going down in price The stock is easily available from a range of suppliers – the suppliers have little bargaining power
- 20. Some reasons for business to hold very little stock The stock comes from a local supplier and takes a very short time to obtain The stock may soon be going down in price The stock is easily available from a range of suppliers – the suppliers have little bargaining power The stock is likely to become obsolete (e.g. electronics)
- 21. Some reasons for business to hold very little stock The stock comes from a local supplier and takes a very short time to obtain The stock may soon be going down in price The stock is easily available from a range of suppliers – the suppliers have little bargaining power The stock is likely to become obsolete (e.g. electronics) The stock is perishable and will soon deteriorate
- 22. Some reasons for business to hold very little stock The stock comes from a local supplier and takes a very short time to obtain The stock may soon be going down in price The stock is easily available from a range of suppliers – the suppliers have little bargaining power The stock is likely to become obsolete (e.g. electronics) The stock is perishable and will soon deteriorate The stock has to be insured and warehoused adding expense to the business
- 23. Trade debtors (accounts receivable) Managing trade debtors is always a fine balance between allowing reasonable credit terms in keeping with the norm in the specific industry and …
- 24. ……….collecting from them when payment is due without annoying them and driving them to the competition
- 25. Businesses are more likely to take a soft approach to collecting from trade debtors – especially when the economy is struggling and customers are not easy to find
- 26. Maybe this isn’t a good idea
- 27. So businesses that have to hold higher levels of stock and are reluctant to collect from trade debtors ……
- 28. …..are the ones that have the most invested in working capital and usually need significant overdraft facilities
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