Working capital (cash, payables and receivables) management is of great importance for any company as it can provide significant savings and enhance operational effectiveness of the corporation.
There is a number of ways a company can finance its working capital for example: Letters of credit (LC), import bills for collection, shipping guarantees, import financing, performance bonds, export LC advising, LC safekeeping, LC confirmation, LC checking and negotiation, pre-shipment export finance, export bills for collections, invoice financing, etc.
Fith regards to the credit to be granted some considerations are to be taken into account, as follows:
There are four Costs categories:
1. Financing costs.
2. Delinquency costs.
3. Costs of initial credit evaluation.
4. Costs of ongoing credit monitoring and collection efforts.
Cinancing costs of credits granted can be measured either directly as the cost of financing the assets or indirectly as the opportunity cost of capital.
Celinquency and bad debt costs occur because of possible ‘unsatisfactory’ payment behavior of the customer.
Costs of credit evaluation comprises of the cost of acquiring and analyzing external credit information (e.g. credit reports) from consumer.
Costs of ongoing credit monitoring and collection efforts arise by pursuing delinquent accounts as well as costs attached for legal intervention to effect collection.
Sales growth promoted by credit;
Enhancing the competitive position
Further use of credit information for further products
Other indirect benefits
In order to make a decision on the way working capital to be managed our consultants utilize some quantitative techniques to incorporate the probabilities within a cost-benefit framework and the present value of recovery rates.