Working capital is nothing but the money available for day-to-day operations of business. It reflects the overall health of business regarding liquidity and efficiency. It includes inventory, accounts payable, accounts receivable, debts and cash on hand within a year. The working capital reflects the performance and activities of the business which includes debt management, revenue collection, inventory management and payment to creditors.

Having a positive working capital is important for any business to grow and flourish. It should be managed carefully to fulfill the expansion plans. The business when uses the cash to pay out everything other than day-to-day expenditure can result in negative working capital. Negative working capital will lead to business failure even when making profits. Hence it is imperative to manage the funds properly and have some liquid cash on hand to run the daily business operations.

Efficient companies avoid shortage situations and invest wisely. Apart from running the business smoothly having adequate working capital offers several other benefits to the business. The following are the top advantages of having an appropriate working capital.

#1 Advantage: Solvency

Adequate working capital prevents the business from failing and helps in maintaining solvency by facilitating continuous production.

#2 Advantage: Goodwill

A comfortable amount of working capital helps business to make the payments promptly resulting in creating goodwill for the business.

#3 Advantage: Availing Loans

Adequate working capital means that the company is performing efficiently with goodwill, high solvency and good credibility which will help the business in obtaining loans from banks and other financial institutions easily.

#4 Advantage: Discounts

Adequate working capital enables a company to source raw material from suppliers and other services at a discounted rates for the prompt payments and bulk purchases.

Adequate Working Capital Advantage # 5. Regular Supply of Raw Materials:

Sufficient working capital ensures a steady supply of raw materials and continuous production.

#5 Advantage: Uninterrupted supply of raw material

Positive working capital facilitates continuous production with the regular supply of raw materials. Raw material is provided by the suppliers regularly as the bills payable are paid promptly.

#6 Advantage: Smooth operation

A company with sufficient working capital can ensure timely payments of wages, salaries and other daily business commitments which boost employee morale and results in increased efficiency. The work efficiency of the employees will reduce the wastage and promotes the production and profits.

#7 Advantage: Bulk purchases

The business with adequate working capital can buy raw material and other material required for production in advance in bulk when it anticipates price increase in future. Bulk purchasing of material at lower prices may result in increased profits as it cut downs the cost by a considerable amount.

#8 Advantage: Return on Investment (ROI)

With the adequate working capital on hand, companies will be able to pay dividends quickly on the investments made by the investor in the company which results in quick and regular returns o investments. Confidence gained by the investors will help the company to raise additional funds easily in the future.