• Trade Receivables form a significant part of the current asset and, therefore, working capital. It also includes the amount due to the bills of exchange receivable. These are the amount in which the business is owned by its customers. A crafted receivables management policy goes a long way in ensuring timely collection and avoidance of bad debts, if any, for the business.

• Each industry has a specific trade cycle, and businesses must ensure to keep their trade receivable cycle in line with the industry. A more extended trade receivable period will result in a delayed collection of cash, impacting the cash conversion cycle of the business.

• The importance of trade receivable is equally reinforced as most of the analysts while evaluating a business check receivables turnover ratio to understand the working capital management efficiency in collection of payments for credit sales undertaken by the business and also to derive bad debts incurred by the business.

• Inventory is another significant part of current assets and, without a doubt, forms an integral component of working capital management. Good Inventory Management is essential since it is responsible for proper control over inventory right from the raw material stage to the finished goods stage.

• Inventory Management begins with inventory control and involves the timely purchase, proper storage, and efficient utilization to maintain even and orderly flow of finished goods to meet timely commitment by the business and at the same time avoid excess working capital in holding of inventory as that will result in a delay in cash conversion cycle and also increase the risk of obsolescence and increase working capital 

requirement which adversely impacts the profitability of the business.

• It is said that cash is the king and also an essential component of current asset and cash involves not just cash only but all liquid securities which can be readily converted into cash. Proper Cash Management goes a long way in keeping the working capital cycle in order and also enables the business to manage its operating cycle. Also, business efficiency is determined by the amount of free cash flow to the firm (FCFF) it generates. Also, proper utilization of cash ensures business to garner trade discounts and improve the cash conversion cycle, which is a critical yardstick to analyze the working capital cycle of any business.

• Trade Payables forms a significant part of current liabilities. It also includes the amount due to the bills of exchange payables. These are the amount which the business has to pay for credit purchases made by it. A crafted payables management policy goes a long way in ensuring timely payment and cordial business relations with vendors and creditors.

• Each industry has a specific trade cycle, and businesses must ensure to keep their trade payable cycle in line with the industry. Also, if a business has a shorted trade payable cycle, it will have to keep more cash in hand, resulting in longer trade cash conversion cycles and more interest costs.

• A more extended trade payable period will result in business making payments to their vendors after long periods. However, if the business can keep a short trade receivable period, then such a scenario improves the business cash conversion cycle and resulting in less working capital requirement, which will ultimately boost profits.

• Further, the importance of trade payables is equally reinforced as most of the analysts while evaluating a business check payables turnover ratio to understand the working capital management efficiency and timely payments by the business to honor its obligation to its creditors.

• A high trade payables turnover ratio shows that creditors are being paid promptly by the business and hence enhancing the creditworthiness of the business. However, a very favorable ratio compared to industry practice shows that the business is not taking full advantage of credit facilities allowed by the creditors resulting in more cash requirements.

Working Capital is the lifeline of a business and enables the smooth running of the day to day operations of the business. Each component is essential and plays an indispensable role in ensuring the success and smooth running of the business.