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 enables an organization to maintain an adequate flow of production. Continuous production ensures that goods are produced with no shortages. That is, it ensures that all factors that are necessary for production to take place are available. This will ensure that finished goods are produced and sold which increases sales which in turn raises the cash at hand. Therefore, it ensures that business solvency is well maintained.
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.
A firm with good financial records can easily access financial assistance. This is attributed to good management of their liquid cash. When a firm can pay their suppliers on time and as well as creditors it develops a good relationship with their clients. The firm will benefit from favorable terms of financing because they enjoy the discount offer from their suppliers and creditors.
When the enterprise can maintain its operational capital it is able to receive a regular supply of raw materials. Production cannot take place if the supply of raw materials is cut. This might be caused by delays in paying suppliers who may stop from supplying. When production is not taking place, it means there no goods and services to be sold to the market.
Businesses that are unable to manage their cash flows might misuse a lot of money and other resources. If the executive finds that funds are not properly used, it is highlighted as misappropriations and can lead to business failure. When business utilizes their funds efficiently it increases employee morale and efficiency which leads to the generation of high income.
When firms can have enough funds, it is in a position to meet unseen contingencies. This is because there are enough funds allocated to meet the emergencies if it occurs. Therefore, firms are not worried about meeting future emergencies which might reduce business operations.
It enables an organization to maintain an adequate flow of production. Continuous production ensures that goods are produced with no shortages. That is, it ensures that all factors that are necessary for production to take place are available. This will ensure that finished goods are produced and sold which increases sales which in turn raises the cash at hand. Therefore, it ensures that business solvency is well maintained.
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.
A firm with good financial records can easily access financial assistance. This is attributed to good management of their liquid cash. When a firm can pay their suppliers on time and as well as creditors it develops a good relationship with their clients. The firm will benefit from favorable terms of financing because they enjoy the discount offer from their suppliers and creditors.
When the enterprise can maintain its operational capital it is able to receive a regular supply of raw materials. Production cannot take place if the supply of raw materials is cut. This might be caused by delays in paying suppliers who may stop from supplying. When production is not taking place, it means there no goods and services to be sold to the market.
Businesses that are unable to manage their cash flows might misuse a lot of money and other resources. If the executive finds that funds are not properly used, it is highlighted as misappropriations and can lead to business failure. When business utilizes their funds efficiently it increases employee morale and efficiency which leads to the generation of high income.
When firms can have enough funds, it is in a position to meet unseen contingencies. This is because there are enough funds allocated to meet the emergencies if it occurs. Therefore, firms are not worried about meeting future emergencies which might reduce business operations.
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