What should a company do to manage its working capital?

Managing working capital effectively is crucial for a company's liquidity and overall financial health. Choosing to collect quickly and pay slowly is a strategy that helps improve a company's cash flow. By accelerating collections from customers, a company ensures it has the cash available to meet its obligations and invest in opportunities that may arise. This approach can also help maintain a stronger working capital position, allowing the business to navigate short-term financial demands effectively.

Additionally, extending payment terms with suppliers can further enhance cash flow, as it allows the company to hold onto its cash longer while still fulfilling its obligations, thus balancing the timing of cash inflows and outflows. This strategy helps optimize working capital management, providing a cushion for unexpected expenses and opportunities.

On the other hand, investing in long-term assets typically ties up cash that could otherwise be used for operational needs, such as meeting day-to-day expenses. Reducing product pricing may drive volume increases but can also impact profit margins, which doesn't directly improve working capital. Increasing inventory levels can lead to excess stock and storage costs if not managed carefully, potentially tying up capital that could be used more effectively elsewhere.