Essentials of Working Capital Management

James S. Sagner Ph.D.?(White Plains, NY) is Adjunct Professor at the University of Bridgeport. He is former Senior Managing Principal of Sagner/Marks, a treasury management consulting firm with offices in White Plains NY. Prior to forming Sagner/Marks in 1992, Mr. Sagner was with the Consulting Services Division of the First National Bank of Chicago (now Bank One).?He has managed over 250 large-scale studies for companies and non-profit organizations worldwide. He is recognized as an expert in financial management and his clients have included leading insurance companies, securities firms, finance companies, banks, hospitals, manufacturing companies and service organizations.?He is the author of Cashflow Reengineering (1997) and Financial and Process Metrics for the New Economy (2001), and co-author of Essentials of Managing Corporate Cash (2003).

• Preface xiAcknowledgments xvChapter 1 Concepts in Working Capital Management 1Working Capital Concepts 1Ratio Analysis 7Working Capital Ratios 7Significance of Working Capital 12Applying These Ideas to a Real Business 15Summary 18Part I Cash—Transactions, Banking and Credit, and Financial Instruments 19Comprehensive Case: Widget Manufacturing Case I 19Chapter 2 Cash: Management and Fraud Prevention 25Forms of Cash 26Lockboxing 30Controlled Disbursement 34Bank Products Used for Electronic Transactions 37SummaryChapter 3 Cash, Credit, and Short-Term Financial Instruments 43Developing a Short-Term Forecast 44Preparing a Cash Budget 45Credit Financing 48Short-Term Investments 54Summary 59Chapter 4 Concentration Banking and Financial Institution Relationships 61Changing Financial Landscape 62Bank Relationship Management 63Concentration Banking 64Request-for-Proposals 69RFP Evaluation 75Bank Relationship Reviews 78Summary 80Part II Other Working Capital Accounts— Receivables, Inventory, and Payables 81Comprehensive Case: Widget Manufacturing Case II 81Chapter 5 Accounts Receivable and Working Capital Issues 89Elements of Receivables Management 90Receivables Cycle Monitoring: Ratios 94Receivables Cycle Monitoring: The Aging Schedule 96Sales Financing 98Credit Reporting 99Terms of Sale 103Invoice Generation 104Asset-Based Financing: Receivables 107Debt Collection Agencies 109Summary 109Chapter 6 Inventory and Working Capital Issues 111Elements of Inventory Management 112Inventory Cycle Monitoring: Ratios 113Inventory Cycle Monitoring: Metrics 115Purchasing 117EOQ and JIT 122Work-in-Process 124Asset-Based Financing: Inventory 129Summary 131Chapter 7 Payables and Working Capital Issues 132Elements of Payables Management 133Payables Cycle Monitoring: Ratios 134Accounts Payable Function 136Payables Using Internal Processes 139Payables Outsourcing 140Payroll Alternatives 145Summary 149Part III Issues in Working Capital Management 151Comprehensive Case: Widget Manufacturing Case III 151Chapter 8 International Working Capital 155Capitalism Goes Global 156Elements of International Working Capital 157Financing of International Transactions 158Foreign Exchange Markets 160Analysis of Country Risk 167Other Significant Issues in International Working Capital 169Cultural and Corporate Practices Affecting Working Capital 171Summary 174Chapter 9 Information and Working Capital 175Information Technology 176Bank Information Technology 178Internet Bank Technology 182Enterprise Resource Planning: An Alternative Approach 188Choosing Working Capital Information Systems 191Summary 197Chapter 10 Managing the Working Capital Cycle 199Risk and Working Capital 200Enterprise Risk Management 202Efficiency and Working Capital 204Liquidity and Working Capital 207Suggested Actions 210Developments in Working Capital Management 215The Cost of a Transaction 217Summary 221Appendix A: Suggested Solutions to Widget Manufacturing Company Case—Parts I, II, and III 223Appendix B: Basic Financial Concepts 233Appendix C: Web Sites of Working Capital Market Participants 238Appendix D: Glossary 241About the Author 262Index 263