The Working Capital Procedure describes methods to properly manage the working capital invested to operate the business in areas such as Accounts Receivable, Accounts Payable, and Inventory. The working capital Procedure minimizes working capital while meeting all operational needs. It applies to Finance, Accounting, Sales, and Operations departments. (8 pages, 1278 words)
Total Working Capital – The total amount of capital needed to operate the business. Typically calculated as:
(Accounts Receivable + Inventory) – Accounts Payable.
Where accounts receivable is money owed to the Company (credits) for goods and services delivered, and it frequently refers to the department and/or processes in place to collect these payments including invoicing, processing payments, and collections and deposits.
Accounts payable stands for payments owed (liabilities) by the company to suppliers, service providers, and other creditors for goods and services provided, and it frequently refers to the department and/or processes in place to make such payments.
Lastly, inventory is the quantity of goods and materials on hand in the form of raw and purchased materials, work-in-process, and finished goods (and for retailers, resale goods); typically appears as an asset on the company’s Balance Sheet.
Working capital (in Accounts Receivable, Accounts Payable, and Inventory) needed to operate the business should be minimized to a practical degree, particularly in relation to benchmarks established by top performers in similar industries and managed and used in ways that align with overarching operational and financial goals established in Business Plans, Financial Objectives, and the Capital Plan.
The CFO (Chief Financial Officer) is responsible for overseeing working capital and for completing the TM1000-1 WORKING CAPITAL PLAN.
Top Management is responsible of approving the TM1000-1 WORKING CAPITAL PLAN.
- Working Capital Plan
- Working Capital Performance
- Reviewing the Working Capital Plan
- Improving the Working Capital Plan
Working Capital Procedure Forms
- Working Capital Plan Form