![]() I've noticed the construction industry frequently gets paid deposits before work begins. If a customer procurement specialist seems to be only concerned about price, maybe concede some price in exchange for very quick payment terms or even deposits in advance. To make this work in practice, managers should consider their relationships with customers and suppliers to find opportunities for working capital improvement. ![]() In other situations, it’s better to employ a bit more capital to achieve higher profits. At times, it’s worth giving up a bit of profit to significantly reduce capital employed. Indeed, in a business world littered with companies obsessed with their profit and loss statement, almost without regard for their balance sheet, having the ability to make trade-offs between profits and working capital can be an advantage. So, there are times when having more working capital is better. As CFO Jana Croom explained this decision, “Customers are more than welcome to use our balance sheet, provided they are willing to pay for it.” Working Capital For example, to strengthen customer relationships during the pandemic, Kimball Electronics increased inventory to mitigate potential parts shortages. ![]() But interestingly, the best path was not always to drive lower net working capital. It may lead to liquidity problems – not being able to pay short-term debts on time, hence stoppage times, or even getting out of business.In addition, my colleague and I interviewed several EP company executives, and working capital management was frequently raised as an important driver of capital productivity. Increasing the firm’s Current Liabilities might be risky. However, there are risks in cutting down on Working Capital in this way.
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