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CDA Services

Credit & Working Capital Management

CDA Credit and Working Capital Management Services in Dubai involve managing cash, inventories, and accounts payable and receivable for the effective administration of your firm’s short-term assets and its short-term liabilities. Through our capital management services, we ensure that your firm is able to run its operations while being able to repay its maturing short-term debts and expenses that might occur in the near future.

credit and working capital management uae

Credit & Working Capital Management In Dubai, UAE

It is necessary for any business owner to have enough money on-hand to meet an emergency need. In fact, your capability to manage working capital will decide the strength, endurance, and overall quality of your business.

As a business owner, harmonising your short-term assets and liabilities is your incessant responsibility. Working capital is an immediate requirement that can positively or negatively affect your business’s long-term goals. 

Working Capital means ‘Current Assets – Current Liabilities.’ It’s a measure of the company’s efficiency and short-term financial health. It is the cash flow that is used for your business’s day-to-day operations. In another way, it is the administrative accounting approach of a company to monitor and utilize the current assets and current liabilities to ensure the efficient financial operation of the company.

Efficient and effective management of working capital safeguards profitability and overall financial health for businesses, and always upholds sufficient cash flow to meet its short-term operating costs and debt obligations. 

The key objectives of working capital management are to ensure the liquidity and profitability. The insufficient cash to pay for its current expenses will lead the company to file for bankruptcy, to undergo restructuring by selling off assets, to reorganize, or to liquidate. At the same time, if a company makes excessive investments in cash and liquid assets, it may lead to a meagre use of company resources.

How to ensure the Effective Management of the Working Capital 

The Effective Management of Working Capital takes the following tasks: -

  • Cash management 

Recognise the cash balance which allows for the business to meet its day to day expenses, and then reduces cash holding costs.

  • Inventory management

Recognise the level of inventory which allows for uninterrupted production and reduces the investment in raw materials, minimizes reordering costs, and then increases cash flow. Moreover, the lead times in production should be lowered to reduce Work in Process (WIP), and the Finished Goods should be kept on as low level as possible to avoid excess production.

Proper management of the EOQ (Economic Order Quantity) is also important. It is the order quantity that reduces the total holding costs and ordering costs.

  • Debtors management

Recognise the proper credit policy which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and henceforth Return on Capital or vice versa. 

  • Short-term financing

Recognise the suitable source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier.

How to Manage short-term investments

  • Grant credit to customers
  • Collect the credit granted to the customers
  • Manage the inventory
  • Manage the payables 
  • Procurement of reliable cash forecasts 
  • Procurement of accurate data on transactions and bank balances
  • Creditor’s Management

Your good relationship with creditors is a major tool for the smooth operation of your business. Suppliers, banks, and other statutory bodies affect the cash flow of most of the businesses. Controlling credit will improve revenues and profit by facilitating sales and reducing financial risks.

You cannot pay your bills on time if your cash flow is diminished. You may use a PDC or Letter of credit to handle this situation. 

PDC (post-dated cheque) is issued by an issuer to a recipient as a form of payment ahead of time. A PDC cannot be cashed before the date on the cheque.

A letter of credit is a letter issued by a bank to another bank to serve as a guarantee for payments made to a specified person under specified conditions. It’s a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods.

Your ability to manage the situation healthy by paying your bills on time will attract your creditors with more trust and confidence in you. However, if mange it badly, the situation can develop into a catastrophe.

  • Prepaid Expense 

All the prepaid expenses are paid through PDC, and this will help proper management of working capital.

Why working capital management is vital to a company!

Working capital management is crucial to a company because: 

  • It represents the net current assets available for day-to-day operating activities. 
  • It ensures that a company upholds sufficient cash flow to meet its short-term operating costs and obligations.
  • The elements of working capital are the inflows of cash, the outflows of cash, the management of inventory and the bank overdraft. 
  • Companies must make reliable cash forecasts and uphold exact data on transactions and bank balances.
  • The shareholder wealth is more closely related to cash generation than accounting profits.
  • The insufficient cash to pay for its current expenses may lead the company to bankruptcy.
  • Holding excessive liquid assets or cash may not be the best use of its resources.

Advantages of Working Capital Management on Your Business!

  • Upsurges Your Profits

Appropriate management of working capital can boost your revenue that you can spend on additional costs, like new equipment, hiring more employees, or you can invest these extra funds in marketing for furthering your business growth. Enhancing your working capital to go lower will increase your profits over time which will inexorably lead to more customers and higher production value.

  • Ensures Capability to Face Emergencies

Proper management of working capital can ensure extra funds. You may better save these funds for emergencies, so that you will not be at risk to pay for repairs, employee salaries, or other necessary costs in the case of an emergency situation.

Likewise, if you get a remarkably bulk order, you can use your reserved working capital to quickly pay the bill. This will surely increase the value of your business and would help you get back your customer base in the long-term.

  • Ensures Enhanced Credit Score

When you pay back the debts while producing revenue, your operating cycle is financed, and will possibly enhance your credit score. To raise your credit score, you are required to pay your rent, vendor bills, and loan payments on-time. 

When you prove that you pay your bills on-time and have a higher credit score, you’ll be qualified for a lower-rate business loan or line of credit. Hence, it would be easy for you to obtain funding in the future, and you’ll have peace-of-mind realising that your business is in good financial position.

Credit Analysis

Credit analysis is the process by which one analyses the creditworthiness of a person or an organization. This is one of the tools used in the working capital management.

Companies should never sell on credit thoughtlessly to every customer approaching it.The companies who are disregarding a thorough analysis of their customers would soon fall into insufficient resources for day-to-day operation of the business. So, a company must ensure that it analyses the risk of paying late or risk of default before lending credit.

The credit analysis helps a company in the following ways:

  • It helps to get the financial and non-financial information about the customer.
  • It helps analyse the credit merit of the customer and assess the risks involved.
  • It helps the company decide whether to allow the credit to a customer.
  • It helps the company to have better liquidity position.
  • It helps to have better working capital. So, a company can take risk for the short term, and plan for more investment.

It’s a difficult task to analyse the credit worthiness of the customer. CDA collects the financial and non-financial information and some other insights and helps the company to determine the credit merit of the customer in the following ways: -

  • Helps to ensure whether the customer is willing to pay the bill by analysing the character of the customer 
  • Helps to ensure whether the customer has the capacity to pay the bill whenever they are due.
  • Helps to examine the net worth of the customer to assess the capital base.
  • Helps to analyse the market condition considering the predictable trends in the market, the rising competition and other market issues
  • Helps to analyse the costs associated with extending the credit. The cost may sometimes be high and may be reflected in high bad debt expenses or the default in payments.
  • Helps the company examine the kind of security that the customer is providing.

Why choose CDA AUDIT

The goal of working capital management is to ensure that a company can afford its day-to-day operating expenses while investing the company's assets in the most productive way. In the present depression situation, working capital management is of dominant importance to businesses of all sizes and financial condition. At this juncture, CDA helps a business to manage its short-term debt and current and future working expenses through its proper management of working capital, and helps companies in all the stages of their life circle and financial stability.

We create credit management policies and measures, define and implement action plans, get credit and funding for your business through debt funding services, lease & asset-based funding, etc.

CDA services cover a wide area that includes CFO Services, Auditing Services, Accounting & Bookkeeping Services, Accounting Software services, Due Diligence Services, and Tax Filing & VAT Consultancy services.

If you have any queries regarding the credit & working capital management or about your current business, feel good to contact us. CDA is there for your assistance! 

Our expert will give you one-hour Free Consultation to keep your reservations away! 


 

 

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