Logo Credit Management tools
Tools, tutorials, methods and services
To know how to get paid by your clients

The working capital

Let's talk about the Working Capital Requirement (WCR) which includes Credit Management stakes.

What is the Working Capital Requirement ?

Working Capital Requirement is the amount of money needed to finance the gap between disbursements (payments to suppliers) and receipts (payments from customers).
Working capital requirements

Almost every company must incur expenses before obtaining the fruits of his labor (the payment of customer invoices). The nature of these costs depends on the activity.

For example, if the business activity consists to buy and resell goods, it will require to purchase a stock of goods before selling. If it's an industry, it is necessary to buy the raw material before transforming it and then sell the finished product.

This operating cycle must be financed because it is necessary in most cases to pay suppliers before being paid. The working capital requirement represents the amount necessary to finance this delay.
operating cycle

The financial resources of businesses are always limited. It is therefore desirable to minimize the Working Capital Requirement:
  • Because it is a major consumer of cash,
  • Because it reveals dysfunctions that have "in fine" an impact on the company's profitability:

    • Mismanaged the inventory will tend to swell it and cause dead inventory which will lead to losses due to the necessary decrease of the inventory value,
    • Lax management of receivables result in significant late payments that can not be recovered, that is generating losses due to bad debts,
The WCR is therefore central in the management of a company because it is the common denominator of three elements essential to the proper functioning of any business:
  • Cash,
  • Profitability,
  • Business organization efficiency.
The WCR may increase due to poor management of inventories and receivables, but also because of the growth of the business of a company. In this case, the offset of cash described above is carried out on larger volumes, resulting in an automatic increase of the working capital requirement. For this reason we talk about the financing of the growth, which is crucial though often neglected.
Some companies have a negative WCR! This is explained by the fact that they are paid by their customers before paying their suppliers. This is the case of large retailers. The activity itself generates cash, which is quite outstanding. The cash surplus obtained allows them to develop products that are unrelated to their core business (insurance, financing ... etc.).
  • My DSO Manager

    My DSO Manager, the online debt recovery software

    My DSO Manager offers a set of powerful features to manage accounts receivable and to improve working capital.

    It includes innovative functionnalities for credit management and debt collection.

    Dunning documents (emails, interactive emails, SMS, mails...) are dynamically generated through #Hashtag and are customizable for each customer for optimum efficiency.

    The software can be used very quickly with Smart upload module, automatic import by FTP or our connector (Quickbooks, Salesforce...). See more with the online demo.

The WCR today !

At a time when margins are getting lower because of the increase of raw materials cost and an increasingly tense competition, where external financing (bank, investors) is less and less accessible, companies are obliged to find other means to finance their activities.

This concerns especially companies whose equity level is low, which is the case with many of them, particularly in France where the under-capitalization of companies is chronic.

The most obvious answer to this permanently stronger tension imposed by the outside world is to optimize the use of financial resources available internally to the company, through a precise and efficient management.

How to do that ? By reducing the WCR! This allows to improve cash and to use the financial resources available of the company for truly useful means: investment, development ... etc., instead of immobilizing them in areas that are inert like trade receivables and inventories.

Tools download:

Normative working capital
Drive the working capital
Improve the working capital
Discount and prepayment

Comment this page

Your name:
Your comment:
Your email (not published) :
What is the result of 6 5 ?

Articles on the same topic

Normative working capital
How to calculate the normative working capital requirement. Full method of calculation with examples.

Drive the working capital
Tools for the management of the working capital

Improve the working capital
How to improve the working capital requirement ?

My DSO Manager → Your Debt Collection Software available for all sizes of companies
Not yet registered? The subscription allows downloading and unlimited use of all files of Credit Management tools.
User reviews

This Credit Management Tools is very useful in my present job as a Credit & Collection Manager.

Social networks
Find Credit Management tools on your favorite social networks