management CHAPTER 9 – WORKING CAPITAL MANAGEMENT 124 CHAPTER CONTENTS THE TREASURY FUNCTION --------------------------------------------- 125 ROLE 125 CENTRALISATION 125 VS. DECENTRALISATION PROFIT 126 CENTRE VS. COST CENTRE SHORT-TERM 127 SOURCES OF FINANCE ASSET 128 SPECIFIC SOURCES OF FINANCE WORKING CAPITAL MANAGEMENT – AN OVERVIEW --------------- 129 WORKING 129 CAPITAL SEESAW LEVEL 129 OF WORKING CAPITAL FUNDING 130 THE WORKING CAPITAL REQUIREMENT MEASURES OF WORKING CAPITAL MANAGEMENT ------------------ 131 LIQUIDITY 131 RATIOS OVERTRADING ---------------------------------------------------------- 133 MANAGING RECEIVABLES --------------------------------------------- 134 CREDIT 134 MANAGEMENT COST OF FINANCING RECEIVABLES ---------------------------------- 136 DISCOUNTS 136 FOR EARLY PAYMENT FACTORING 137 ANNUALISED 139 COST OF A CASH DISCOUNT MANAGING INVENTORY ----------------------------------------------- 140 MATERIAL 140 COSTS ECONOMIC 141 ORDER QUANTITY BULK 142 PURCHASE DISCOUNTS CASH MANAGEMENT ---------------------------------------------------- 143
management CHAPTER 9 – WORKING CAPITAL MANAGEMENT 124 CHAPTER CONTENTS THE TREASURY FUNCTION --------------------------------------------- 125 ROLE 125 CENTRALISATION VS. DECENTRALISATION 125 PROFIT CENTRE VS. COST CENTRE 126 SHORT-TERM SOURCES OF FINANCE 127 ASSET SPECIFIC SOURCES OF FINANCE 128 WORKING CAPITAL MANAGEMENT – AN OVERVIEW --------------- 129 WORKING CAPITAL SEESAW 129 LEVEL OF WORKING CAPITAL 129 FUNDING THE WORKING CAPITAL REQUIREMENT 130 MEASURES OF WORKING CAPITAL MANAGEMENT ------------------ 131 LIQUIDITY RATIOS 131 OVERTRADING ---------------------------------------------------------- 133 MANAGING RECEIVABLES --------------------------------------------- 134 CREDIT MANAGEMENT 134 COST OF FINANCING RECEIVABLES ---------------------------------- 136 DISCOUNTS FOR EARLY PAYMENT 136 FACTORING 137 ANNUALISED COST OF A CASH DISCOUNT 139 MANAGING INVENTORY ----------------------------------------------- 140 MATERIAL COSTS 140 ECONOMIC ORDER QUANTITY 141 BULK PURCHASE DISCOUNTS 142 CASH MANAGEMENT ---------------------------------------------------- 143