Working capital management is a business strategy designed to ensure that a company operates efficiently by monitoring and using its current assets and liabilities. The primary purpose of working capital management is to enable the company to maintain sufficient cash flow to meet its short-term operating costs and short-term debt obligations. A companys working capital is made up of its current assets minus its current liabilities. Effective working capital management includes inventory management as well as management of accounts receivable and accounts payable.

Working capital management aims at more efficient use of a companys resources by monitoring and optimizing the use of current assets and liabilities. The goal is to maintain sufficient cash flow to meet its short-term operating costs and short-term debt obligations and maximize profitability. Working capital management is key to the cash conversion cycle (CCC), or the amount of time a firm uses to convert working capital into usable cash.

Effective working capital management entails trend analysis by computing and tracking ratios and metrics, forecasting working capital balances by balance sheet category, assessing accounts receivable and accounts payable aging reports, inventory management, cash management, short-term accrued liabilities, and spend management. The factors that can affect working capital needs can be endogenous or exogenous. Endogenous factors include a company’s size, structure, and strategy. Exogenous factors include the access and availability of banking services, level of interest rates, type of industry and products or services sold, macroeconomic conditions, and the size, number, an...