WORKING CAPITAL

AND RECEIVABLES
MANAGEMENT

MADE BY-
NEHA MAKKAR
HIMANSHU
HAIDER
VIJENDER
RAHUL
 MEANING OF WORKING
CAPITAL
 Working capital is that capital which is
involved in the current assets of the
business. Basically it is the capital which is
required to meet the day to day expenses of
the business.
 TYPES OF WORKING CAPITAL

 On the basis of  On the basis of need

concept
 Permanent working
 Gross working capital capital
 Net working capital  Temporary working
capital
 ON THE BASIS OF CONCEPTS
 Gross working capital= Total current assets
Management is concerned with total current
assets as they represent the funds available for
operating expenses.

 Net working capital= Current assets -

Current liabilities
It is the excess of current assets over current
liabilities.
 ON THE BASIS OF NEED
 Permanent working capital: The sum up of
the funds required to finance the minimum
level of current assets of the business is
known as the permanent working capital.

Temporary working capital: It is required to

explore the short term opportunities of the
market. The requirement of temporary
working capital varies with time period.
 Seasonal working capital
 Special working capital
 OPERATING CYCLE CONCEPT
Operating cycle is the time period between
acquisition of raw materials and the receipt of
cash through cash sales or collection from
debtors.
 Longer the operating cycle, larger will be the
working capital requirement because in operating
cycle cash outflow takes place at every stage but
cash inflow takes place only at the end of the
operating cycle.
STAGES OF OPERATING CYCLE
FACTORS AFFECTING THE
WORKING CAPITAL REQUIREMENTS

 Nature of business
 Scale of operations
 Business cycle
 Seasonal factors
 Production cycle
 Credit allowed
 Credit availed
 Availability of raw materials
 OBJECTIVES OF WORKING
CAPITAL MANAGEMENT

 The goal of working capital management is

to manage the firm’s current assets and
liabilities in such a way that a satisfactory
level of working capital is maintained.

 The interaction between current assets and

current liabilities is therefore the main
theme of the theory of the working capital
management.
 WHAT ARE RECEIVABLES ?

 Receivables are sales made on credit basis.

 So the term receivables is defined as the “

debt owed to the firm by customers arising
from sales of goods and services.
 RECEIVABLES MANAGEMENT
 Receivables management is the collection of
steps and procedure required to properly weigh
the costs and benefits attached with credit
policies.

 It is also called as ‘trade credit management’

as the company allows its customers an
extension of credit or trade credit, which
enables them a reasonable period of time in
which to pay for the goods or services received.
 RECEIVABLES MANAGEMENT:
CRUCIAL DECISIONS
It involves crucial decision in three areas:
 Credit policies: It is the determination of
credit standards and credit analysis.
 Credit terms: are basic criteria/minimum
requirements for extending credit to a
customer.
 Collection policies: involves obtaining credit
information and evaluation of credit
applicants.
 OBJECTIVES OF RECEIVABLES
MANAGEMENT
 Credit sales are used as marketing tool for a
company.
 Maximise the return on investment in
receivables
 Maintaining up-to-date record
 Accurate billing
 Establish the credit policies.
TYPES OF COSTS RELATED WITH
RECEIVABLES
The major categories of costs associated with
maintaining receivables are:
 Capital costs:

 Time gap between cost incurred and sales

incurred.
 Funds to be raised for payment of wages and
suppliers.
 Such funds to be raised from outside or from
retained earnings.
 Liability to pay interests to creditors.
 Administrative costs:
 Costs incurred for maintenance of customers’
accounts.
 Costs incurred for investigating the
creditworthiness of the customers in the market.

 Collection costs:
 Expense for collection of payments from credit
customers.
 Costs of recovery from defaulting costs.
 Delinquency cost:
It is the cost arising out of failure of
customers to pay on due date.

 Default cost:
These are the over dues that cannot be
recovered. Such debts are treated as bad
debts and have to be written off as they
cannot be realised.
 BENEFITS OF RECEIVABLES
MANAGEMENT
 Increase in sales
 Increase in profits
 Meeting the competition
 Helps to increase customer satisfaction
 It creates a good relationship between firms
and customers.
THANK YOU