Answer to Question #246140 in Management for Q.v

Question

They usually buy large amounts of inventory on credit to make use of bulk
discounts, and keep very little cash on hand. Every year they arrange a massive
clearance sale to get rid of old stock.
Adams & Adams has a moderate working capital approach to determining the
appropriate balance between the short-term and long-term financing needed by
the firm. What makes this approach particularly challenging for Adams & Adams is
the difficulty they have in determining the exact lifespan of their equipment –
depending on the market and the season, they can be either extremely busy or
very quiet.
Explain why this uncertainty will make it difficult for Adams & Adams to follow the
moderate working capital approach. How can they better manage their inventory
and cash flow to ensure that they will not run the risk of bankruptcy?

Answer 1

An excess of working capital may indicate that the company is either ignoring or ignoring growth possibilities. Negative working capital has several drawbacks, ranging from late payments to the possibility of insolvency or liquidation.

 How to manage inventory and cash flow to ensure that they will not run the risk of bankruptcy

Keep an eye on your cash flow frequently. Reconcile your accounts, produce reports, and more with online accounting software like QuickBooks Online. Because your data is safe in the cloud, you can manage your cash flow no matter where you are. Before you need one, get a company line of credit.

A company line of credit is an excellent way to protect yourself against cash flow issues. If you use your accounts receivable or inventory as collateral, you might be able to acquire a line of credit for a percentage of them.