Policy Identification of the Working Capital Management of Medium-Sized Business

Abstract

Enterprises use working capital to meet the needs of the organizations in order to perform operational activities. Hence, in order to produce optimal results, companies require sufficient working capital. Medium-scale industries have great potential in driving the economy through output and employment. As such, the purpose of this research is to analyze the working capital management policy of medium-sized business. This research employs literature study method by compiling relevant literature on the research problems. The data analysis process of this research is divided into three stages: (1) data reduction, which includes summarizing, classifying main points, focusing on important facts, and finding patterns; (2) data display, which includes data compilation and systematic data presentation; and (3) conclusion drawing and verification, which presents the research conclusions on the problem statements. Research findings suggest that working capital policy is dependant upon loan term and interest rate, which means that longer loan period leads to higher interest. Long-term loan of working capital requires debtors to pay bigger interest than short-term loan, because creditors must take into consideration the risks of uncertain future. Companies with short cash conversion cycle suggest fast retrieval of accounts receivable, good inventory management, and slower payment to supplier while maintaining corporate credibility.