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Working capital management based on account receivables exposure

Working capital management refers to the management of a company's short-term financial resources, including its cash, inventory, and accounts receivable. A key aspect of working capital management is managing the company's account receivables, or the money that is owed to the company by its customers for goods or services that have been delivered but not yet paid for.

There are a few different ways that a company can manage its account receivables exposure, which is the risk that a customer will not pay their bill on time or at all. Here are a few strategies that a company might use:

  1. Offer credit terms: A company can offer credit terms to its customers, which allows them to pay for their purchases at a later date. This can be a good way to attract customers, but it also means that the company is taking on some risk that the customer may not pay their bill on time.

 

  1. Monitor creditworthiness: A company can also monitor the creditworthiness of its customers to try to reduce its account receivables exposure. This might involve running credit checks on potential customers before offering them credit terms, or requiring customers with poor credit to pay upfront or to provide collateral in exchange for credit.

 

  1. Set payment terms: A company can also set payment terms that are favorable to the company, such as requiring payment within a certain number of days of the invoice date. This can help to reduce the company's account receivables exposure by encouraging customers to pay their bills on time.

 

  1. Use credit insurance: A company can also purchase credit insurance, which can protect the company against losses if a customer fails to pay their bill.

By effectively managing its account receivables exposure, a company can reduce the risk of not being paid on time, which can help to improve its cash flow and overall financial health.

 

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