Businesses must maintain a certain amount of money to enable them to carry day-to-day operations. They must ensure finances are at an optimum level to enable their operations run successfully. Therefore, if an enterprise has adequate cash flow it is able to carry their activities economically and without financial constraints. It enables companies to face losses and unforeseen circumstances. The following are the advantages of maintaining optimum working capital.
It improves credit profile and solvency of an enterprise. When a business can meet short-term obligations, it can also meet long-term ones and thus can prove to be solvent. When businesses manage their liquidities, it allows them to pay their short-term obligations. This is a good indication that its credit profile is good. Suppliers will be paid on time to allow a continuous supply of materials which increases production.
Also, production is very essential in any firm that wants to fulfil the orders of their client. When suppliers are paid on time, they will supply the raw materials and this contributes to continuous production. This enables the firm to produce goods in large quantities which leads to increases in sales turnover. Also, the firm will be in a position to meet unexpected peak demands.
When a firm can produce their goods in large quantities to match the large demand, it means that they are getting a lot of money. If debtors can meet their obligations on time and the firm on the other hand pay suppliers on time, it means that it is made to make regular payments of commitments. When employees are paid their wages and salaries within the stipulated, it increases their efficiency which in turn increases productivity and reduction in wastages.
It very easy for a business to access loans. Financial institutions are using the business financial statements to assess the creditworthiness and be able to approve loans. When an enterprise can maintain high solvency and goodwill, it becomes easy for banks and other financial institutions to award them loans. Also, it enables the businesses to get loans with favorable terms that will not exert too much pressure to them.
Also, firms will enjoy uninterrupted production of goods. When suppliers are paid on time, they will be in a position to supply raw materials continuously. This will ensure that the production of goods remains constant which leads to an increase in sales because customers are receiving their goods on time. This leads to increases in sales which leads to increases in profits.
Businesses who can manage their available cash, are in a position to meet the crisis. Emergencies are unpredictable and therefore occur anytime. When business is not able to meet the crisis, it possesses a danger to the business which may lead to collapse. By managing cash flow properly, the firm can allocate some amount for emergencies. This beneficial because the business is able to curb emergencies and still resume its daily operations as usual.
Firms must maintain good cash flow to work efficiently. It allows for efficient supply chain and can produce in large quantities. This attracts a high number of customers which the firm can offer discount hence enjoying a competitive advantage. Good management of finances enables the firm to enjoy a variety of services.
It improves credit profile and solvency of an enterprise. When a business can meet short-term obligations, it can also meet long-term ones and thus can prove to be solvent. When businesses manage their liquidities, it allows them to pay their short-term obligations. This is a good indication that its credit profile is good. Suppliers will be paid on time to allow a continuous supply of materials which increases production.
Also, production is very essential in any firm that wants to fulfil the orders of their client. When suppliers are paid on time, they will supply the raw materials and this contributes to continuous production. This enables the firm to produce goods in large quantities which leads to increases in sales turnover. Also, the firm will be in a position to meet unexpected peak demands.
When a firm can produce their goods in large quantities to match the large demand, it means that they are getting a lot of money. If debtors can meet their obligations on time and the firm on the other hand pay suppliers on time, it means that it is made to make regular payments of commitments. When employees are paid their wages and salaries within the stipulated, it increases their efficiency which in turn increases productivity and reduction in wastages.
It very easy for a business to access loans. Financial institutions are using the business financial statements to assess the creditworthiness and be able to approve loans. When an enterprise can maintain high solvency and goodwill, it becomes easy for banks and other financial institutions to award them loans. Also, it enables the businesses to get loans with favorable terms that will not exert too much pressure to them.
Also, firms will enjoy uninterrupted production of goods. When suppliers are paid on time, they will be in a position to supply raw materials continuously. This will ensure that the production of goods remains constant which leads to an increase in sales because customers are receiving their goods on time. This leads to increases in sales which leads to increases in profits.
Businesses who can manage their available cash, are in a position to meet the crisis. Emergencies are unpredictable and therefore occur anytime. When business is not able to meet the crisis, it possesses a danger to the business which may lead to collapse. By managing cash flow properly, the firm can allocate some amount for emergencies. This beneficial because the business is able to curb emergencies and still resume its daily operations as usual.
Firms must maintain good cash flow to work efficiently. It allows for efficient supply chain and can produce in large quantities. This attracts a high number of customers which the firm can offer discount hence enjoying a competitive advantage. Good management of finances enables the firm to enjoy a variety of services.
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