How do companies choose their currency conversion cycle?
How do companies choose their currency conversion cycle? What is the impact of the company’s operating cycle on the size and frequency of investments in accounts receivable and inventories? How do seasonal and cyclical trends affect the operating cycle, the cash conversion cycle and investments in the company’s current assets? These strategic policy issues include an optimal synchronization of cash flow and effective management of working capital designed to maximize the company’s ability to generate wealth.
In this review, we will review the relevant and existing academic literature on the effective management of working capital and provide operational guidance to small businesses.
As you know, net working capital is a correlation with cash. Current assets and liabilities are the sources and immediate uses of the company’s cash flow.
The effective management
The effective management of working capital requires the formulation of an optimal working capital policy and the periodic management of cash flows, inventories, accounts receivable, accrued liabilities and accounts payable.
The importance of liquidity cannot be overstated. A company must maintain its ability to respond to unforeseen expenses and investment opportunities. Financial flexibility arises from the use of leverage and liquidity of a company.
The cash conversion cycle captures the time from the beginning of the production process to the collection of cash from the sale of finished products. Understanding the cash conversion cycle and the age of accounts receivable is essential for successful management of working capital.
Some operational guidelines:
Effective cash management is essential for the success of a business. It is cash flow. A company needs to evaluate current payment processes and identify effective options to accelerate the collection of accounts receivable. Liquidity is fundamental to the success of each business, and effective cash management is the heart of liquidity.
Capital Management and Optimal Synchronization of Cash Flows
The objective is a positive or positive periodic cash balance;
A tracking system that monitors past due loans and sends reminders, invoices and automatic statements is a useful tool. Some companies use factors to sell their accounts receivable to factoring companies to ensure a stable cash flow; Always remember that long-term liabilities become current liabilities in the accounting period in which they expire.