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Has your company experienced negative working capital? How did you get out of it?

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Topic Expert
Mary Driscoll
Title: Senior Research Fellow
Company: APQC (American Productivity and Quality ..
(Senior Research Fellow, APQC (American Productivity and Quality Center)) |

The short answer is: it depends on the root cause of the problem. Here are several questions to pose before seeking the solution:
(1) is the business plan under-funded due to poor planning?
(2) is there difficulty obtaining revolving credit facilities?
(3) is there no good handle on cost drivers of core operations?
(4) have there been faulty projections of customer demand?
(5) what is causing "through-put" to drop unexpectedly?
(6) are customers holding back payment for quality reasons?
(7) have you approved trade-credit terms too loosely?
(8) are suppliers demanding payment terms that could be renegotiated?
(9) are you holding more inventory cushions than necessary?
(10) should you re-think your purchasing/procurement model to access less expensive sources of materials, components, etc.?

Until you analyze the root cause, you won't have a good sense of how to address the problem.

Hope this helps,

Mary Driscoll

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