The WSJ had an interesting article (the big number) that mentioned how working capital was increasing at companies. Working capital is usually defined as: WC = Current Assets - Current Liabilities. The article defines WC as Accounts Receivable + Inventory - Accounts Payable. Having an increase in WC can sometimes indicate that a company is having a tough time converting invoices into cash.
From a factoring company perspective - this is exactly the type of problem that factoring solves. It converts A/R into cash.
By the way WC is just an indicator - and like many it's not all inclusive. For example, an increase in sales (which is good) would also increase Accounts Receivable, which in turn would increase Working Capital.
About Me
- Marco Terry
- I have worked in the factoring industry for a decade. I work for Commercial Capital LLC, a company that offers factoring and purchase order financing. Disclaimer: Content may not be duplicated. Also, nothing in this blog should be construed as financial or legal advice. Consult a professional if you require advice.
