Article Review On Working Capital Management
“Considerations for Using Working Capital Funds,” Wall Street Journal, 4th April, 2015
Financial managers in organizations are faced with enormous challenges as to how to allocate the limited available financial resources with the high demand for the organization. In order to help in solving this dilemma, financial managers use the Working Capital Fund. The Working Capital Fund is a model used by financial managers for recovering the program expenses from the funds collected from customers both internal and external to the organization. This model helps organizations improve on matching resources to the needs. The design further increases the flexibility of the integral support functions of a business. Challenges commonly arise on how to use the current assets and finance them within the organization. Working capital management is therefore, concerned with ensuring that an optimal mix of current assets and liabilities is maintained to enable the business continue to its day to day operations efficiently.
The article in the Wall Street Journal by Deloitte emphasizes on the considerations for using the working capital funds. In the article titled “Considerations for using Working Capital Funds”, Deloitte (1) outlines the primary benefits of establishing a working capital fund in an organization. One significant benefit of Working Capital Fund according to Deloitte (3) is cost recovery. Primarily, working Capital involves having a balance between the current assets and current liabilities. In addition, it is an effective way of financing the shared services and customer service in an organization. Another benefit of the fund is the budget flexibility. The model provides access to additional funding that an organization might require in financing its projects. Additionally, the model provides an opportunity to establish funding flow to support the long- term viability of its projects. Efficient management is achieved through the application of the working capital model. Through the model, there is need to contain costs and ensure efficiencies. Finally, the model according to Deloitte (6) supports fiscal transparency and accountability in the management. The model supports internal control systems by promoting a continuous review of business processes and systems. The continuous constant review ensures there are flexibility, efficiency, and reliability.
The article therefore, relates to working capital management in various aspects. While Working capital management’s primary goal is to ensure their efficiency in the operation, Working Capital Fund (WCF) creates favorable environment for the efficient operation of the businesses. Working capital management aims at achieving efficiency through creating appropriate mix of the current assets and the current liabilities. Working capital management uses a flexible strategy that entails maintaining a high level of cash and marketable securities in order to reduce the risks and maintain high returns from investment. The working capital fund establishes the mechanisms for improving the working capital funds in the organization so as to have access to more funds for financing the business activities. Working capital comprises the accounts receivables and the accounts payable. In maintaining the accounts receivable, the financial manager ensures that the value of the accounts receivable is maintained at the lowest level allowable by the senior management.
In conclusion, the article by Deloitte relates to the Working Capital management in many ways considering the aims of the two elements of capital management. The two aspects aim at ensuring efficiency in the management of the current assets and the current liabilities. They ensure that systems and processes are in place to manage the accounts receivables at the lowest level possible. Furthermore, the model of working capital fund and working capital management maintains the operating and the cash conversion cycles at the level desirable by the management.
Deloitte. "Considerations for using Working Capital Fund." Wall Street Journal, CFO Insights and Analysis 4 Apr. 2015: 16. Print.
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