Using 

Working 
Capital 
Effective and efficient
management of
Management 
working capital Effectively
improves returns and
minimizes risk that the
business enterprise
will run short of cash.
Evaluating Working 
Capital
- Managing working capital
requires making decisions on
how assets should be
financed; net working capital
increases when current assets
are financed through
noncurrent sources.
- Managing working capital is
also evaluating the trade off
between return and risk
Cash Management

– The goal of cash management is to invest excess

cash for a return and at the same time have adequate
liquidity.
– Proper cash forecasting is particularly crucial in a
recession and is required to determine (1) the optimal
time to incur and payback debt and (2) the amount to
transfer between daily accounts.
Clearing of Checks

– Check clearing is the movement of a check from

the bank in which it was deposited to the bank on
which it was drawn, and the movement of its face
amount in the opposite direction. This process
(called 'clearing cycle') normally results in a credit
to the account at the bank of deposit, and an
equivalent debit to the account at the bank on
which it was drawn.
 Acceleration of Cash 
Inflow
Types of delays in processing checks:
1. “mail float”
2. “processing float”
3. “deposit collection float”
Ways to accelerate cash receipts:
 Lockbox
Wholesale lockboxes
Retail lockbox
 Return Envelopes
 Pre-Authorized Debits
 Wire Transfers
 Depository Transfer Checks (DTCs)
Delay of Cash Outlay

Ways to delay cash payments:

 Centralize Payables
 Zero Balance Account (ZBA)
 Drafts
 Delay in Mail
 Check Clearing
 Delay Payment to Employees
CASH MODELS

–Costs
  are expressed as
F +i
where F = the fixed cost of a transaction
T = the total cash needed for the time period involved
i = the interest rate on marketable securities
C = cash balance
C* = optimal level of cash

The optimal level of cash is determined using the following formula:

C* =
 BANKING 
RELATIONSHIPS
 INVESTING IN 
MARKETABLE EQUITIES
Marketable securities include:
 Time deposits
 Money market funds
 Interest
 Treasury securities
 Management of 
Accounts Receivables
Accounts receivable management directly impacts the
profitability of the firm. It includes determining discount
policy and credit policy for marginal customers,
investigating ways of speeding up collections and
reducing bad debts, and setting terms of sale to assure
ultimate collection.

 Invoicing float
 Mail float
Credit Policies

A key concern in accounts receivable

management is determining credit terms to be
given to customers, which affects sales volume
and collections.
Credit terms have a direct bearing on the costs
and revenue generated from receivables.
Monitoring Receivables

There are many ways to maximize profitability

from accounts receivable and keep losses to a
minimum. These includes:
 Billing
 Customer Evaluation Process
 Insurance Protection
 Factoring
Determining the Investment in 
Accounts Receivable

To determine the peso investment tied up in

accounts receivable, use a computation that
takes into account the annual credit sales and
the length of time receivables are outstanding.