#Working Capital Management - #Accounts Receivables

It is been an interesting journey for the business and the finance functions during the course of its existence. What we call it is a blind spot due to an unexpected challenges that is going through with.

Yes, we can have the sigh of relief, had the uncertainty has receded to an extent, so the business can rein in, so do the finance pundits on figuring out how the investments, funding lines and the equities can stay afloat to sustain the business, to take a cue on some known territory.

Taking the side of vital aspect of working capital management under consideration among other business peripherals, We see there are some interesting changes rather than calling it as the challenges to say, away from typical scenarios is that the credit risk, so do the funding lines and the swelling working capital pots or on the other hand the dried pots to meet the reignited business speed to catch up.

Yes, the working capital swelled by carrying in with it, the inventories, recent or the obsolete or depleted ones, the market credit risk, especially the Accounts receivables that's getting bigger by the day, is becoming a challenge to face by.

How we can manage, least not to say contain the Accounts receivables funds blocking is to have the systematic rationing of credit to the clients who are on board or to the new clients to be on board.

One of the method I look up is to have the credit quotas on relative terms for the clients per se, rather than on the gross block values basis. To elaborate a bit

1. Take into consideration the normal business performance of the client ignoring the abnormalities, for a block of the period as per the industry norms of respective business,
2. Average it to the daily business done in terms of value.
3. Have the daily revenue / business that's calculated arrived as per 2 above raised to the product of the credit days of the segment terms, might the company wide, region wide credit score wide parameters.
4. Cap it up at 75% to 80% value of the value thus arrived above in 3
5. Keep the 25% to 20% buffer to meet the unexpected pressure from sales / client side to consider.

With the above simple yet effective mechanism, a comprehensive size of the Accounts receivables / width in the working capital size can be measured besides other working capital components.

By taking care of the one of the major components working capital, the incidental risk can be quantified to a reasonable extent while planning to move a head, for say a short to mid terms.

Other working capital aspect can be discussed in subsequent sessions to streamline funding pattern of the business.