The Finance Book by Warner Stuart;Hussain Si;

Author:Warner, Stuart;Hussain, Si; [Warner Stuart and Hussain Si]
Language: eng
Format: epub
ISBN: 9781292123653
Publisher: Pearson Education Limited
Published: 2017-04-12T16:00:00+00:00

In practice

Some businesses delay payments to creditors as a tactic to fund working capital needs. Each day a creditor payment is delayed is a day that the creditor is financing the working capital of the business. While legal, the morality of this practice is questionable (especially when small suppliers are financing larger companies). Large companies nowadays are encouraged to publish how long it takes to pay creditors and this is used by some companies to distinguish themselves from competitors by displaying their fair trading policy credentials.

There is no ‘right’ level of working capital. Each business is unique and will face its own challenges and opportunities including default by customers, cyclical sales patterns, etc. A business should aim to manage its working capital to ensure it is sufficient but not excessive for its operating needs. Sufficient in this sense implies having access to liquid resources that enable the business not only to meet identified short-term liability payments but also to deal with unexpected events, for example bad debts or customer refunds.

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