Businesses must maintain a certain amount of money to enable them to carry day-to-day operations. They must ensure finances are at an optimum level to enable their operations run successfully. Therefore, if an enterprise has adequate cash flow it is able to carry their activities economically and without financial constraints. It enables companies to face losses and unforeseen circumstances. The following are the advantages of maintaining optimum working capital.
It improves credit profile and solvency of an enterprise. When a business can meet short-term obligations, it can also meet long-term ones and thus can prove to be solvent. When businesses manage their liquidities, it allows them to pay their short-term obligations. This is a good indication that its credit profile is good. Suppliers will be paid on time to allow a continuous supply of materials which increases production.
Also, it maintains the cash discount offered to it by suppliers. When cash is well balanced, there will be no more outflows. This is done by ensuring that the goods that they receive from their suppliers are paid on time and also ensure that the debtors are meeting their obligations on time. When suppliers are paid on time, they can avail discount to the business which increases the cash at hand.
When a firm can produce their goods in large quantities to match the large demand, it means that they are getting a lot of money. If debtors can meet their obligations on time and the firm on the other hand pay suppliers on time, it means that it is made to make regular payments of commitments. When employees are paid their wages and salaries within the stipulated, it increases their efficiency which in turn increases productivity and reduction in wastages.
A firm with good financial records can easily access financial assistance. This is attributed to good management of their liquid cash. When a firm can pay their suppliers on time and as well as creditors it develops a good relationship with their clients. The firm will benefit from favorable terms of financing because they enjoy the discount offer from their suppliers and creditors.
When the enterprise can maintain its operational capital it is able to receive a regular supply of raw materials. Production cannot take place if the supply of raw materials is cut. This might be caused by delays in paying suppliers who may stop from supplying. When production is not taking place, it means there no goods and services to be sold to the market.
Businesses that are unable to manage their cash flows might misuse a lot of money and other resources. If the executive finds that funds are not properly used, it is highlighted as misappropriations and can lead to business failure. When business utilizes their funds efficiently it increases employee morale and efficiency which leads to the generation of high income.
Firms must maintain good cash flow to work efficiently. It allows for efficient supply chain and can produce in large quantities. This attracts a high number of customers which the firm can offer discount hence enjoying a competitive advantage. Good management of finances enables the firm to enjoy a variety of services.
It improves credit profile and solvency of an enterprise. When a business can meet short-term obligations, it can also meet long-term ones and thus can prove to be solvent. When businesses manage their liquidities, it allows them to pay their short-term obligations. This is a good indication that its credit profile is good. Suppliers will be paid on time to allow a continuous supply of materials which increases production.
Also, it maintains the cash discount offered to it by suppliers. When cash is well balanced, there will be no more outflows. This is done by ensuring that the goods that they receive from their suppliers are paid on time and also ensure that the debtors are meeting their obligations on time. When suppliers are paid on time, they can avail discount to the business which increases the cash at hand.
When a firm can produce their goods in large quantities to match the large demand, it means that they are getting a lot of money. If debtors can meet their obligations on time and the firm on the other hand pay suppliers on time, it means that it is made to make regular payments of commitments. When employees are paid their wages and salaries within the stipulated, it increases their efficiency which in turn increases productivity and reduction in wastages.
A firm with good financial records can easily access financial assistance. This is attributed to good management of their liquid cash. When a firm can pay their suppliers on time and as well as creditors it develops a good relationship with their clients. The firm will benefit from favorable terms of financing because they enjoy the discount offer from their suppliers and creditors.
When the enterprise can maintain its operational capital it is able to receive a regular supply of raw materials. Production cannot take place if the supply of raw materials is cut. This might be caused by delays in paying suppliers who may stop from supplying. When production is not taking place, it means there no goods and services to be sold to the market.
Businesses that are unable to manage their cash flows might misuse a lot of money and other resources. If the executive finds that funds are not properly used, it is highlighted as misappropriations and can lead to business failure. When business utilizes their funds efficiently it increases employee morale and efficiency which leads to the generation of high income.
Firms must maintain good cash flow to work efficiently. It allows for efficient supply chain and can produce in large quantities. This attracts a high number of customers which the firm can offer discount hence enjoying a competitive advantage. Good management of finances enables the firm to enjoy a variety of services.
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