Financial Words of the Week (Small Business Month): Working Capital
Working capital is a financial measure of cash that is calculated as Current Assets divided by Current Liabilities. Working capital is a common measure of a company’s liquidity. Current assets are your company’s most liquid assets, such as cash and other items that could be quickly turned to cash. Current liabilities are obligations that are due within a year. A positive working capital usually indicates that the company is able to pay off its short-term liabilities quickly.
Current assets and current liabilities include four areas that are critical for working capital management:
- inventory management
- accounts payable – Remember to negotiate discounts with vendors and suppliers for a net 10 or 30-day payment.
- accounts receivable – With money your clients owe you, consider ways to speed up payment that will impact your working capital.
- Communication – when do you follow up on past-due items? Could you make a 10-day courtesy call? Do you have standard collection practices based on the size of your clients?
- Eliminate any manual processes within your organization to prevent delays.
- Shorten payment terms, and potentially provide a discount for paying promptly.
- Email invoices and allow for Electronic Funds Transfer (EFT) payment.
Consider these ways to positively impact on your working capital and the strength of your business.
UMB Financial Corporation (Nasdaq: UMBF) is a diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas, as well as two national specialty-lending businesses. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors.