Managing Current Assets

Managing current assets is the continuous monitoring and adjustment of short-term assets to ensure that they are utilized in the most efficient manner possible. Excess amount of accounts receivable (AR), inventory and idle cash are wasteful because those funds could be employed in more lucrative endeavors such as projects, long-term investments, or paying returns on financing.

BENEFITS MANAGING CURRENT ASSETS

Holding excess current assets carries an opportunity cost. Better returns can most likely be achieved by minimizing the balances in your company's short-term assets.

THE MANAGING CURRENT ASSETS PROCESS

Compile the demand, cost, and any other necessary information for cash, inventory, AR, and accounts payable (AP)
Calculate the optimal balances to hold for cash and inventory
Calculate the costs of factoring AR and compare them to collection costs currently incurred
Calculate the annual costs of not taking advantage of early-pay discounts from vendors and compare with returns that might be realized elsewhere
Qualify all of the previous calculations to ensure they coincide with the organization's culture and strategy

FURTHER READING

These links elaborate on the topic at hand. They serve as a good starting point for those companies that would like to learn more or would like to address these topics “in house.” For those firms that prefer to continue to focus on their current responsibilities and would value the objective viewpoint of a professional from outside of the organization, click here.

http://www.danparlagreco.com/FIN476Week1.pdf
Excerpt: “It is very important in setting an inventory level to maintain a balance between having enough in stock to satisfy customers and keeping costs low. Inventory costs money in that interest must be paid on the money used to finance the creation, storage…”

ImperoCo Business Solutions - "Developing Organizational Success."