Question

If Net working capital (% of annualised Revenues) is trending downwards from 5% to 1.5% on my balanced scorecard what action should I take?

Answer 1

The following actions can be taken if the net working capital is trending downwards:

1. The days outstanding in suppliers must be reduced and for early payments discounts must be negotiated.

2. The inventory management must be checked and any slowing moving inventory must be discarded or product must be discontinued.

3. The receivables credit days must be reduced and discounts to be offered to facilitate quicker payments.

4. Reduce the variable costs and increase if the selling price by a small margin if the market is willing to absorb.

5. The operating cycle must be reduced

6. Any unused machinery or fixed assets can be given on lease to improve cash flows.