1. Basics of financial management Chapter 6

2. Working capital management
Inventory management
Credit management
Cash management

3. Inventory management Carrying costs Ordering costs (set-up costs)
Minimizing
Economic order quantity

4. Economic order quantity
Costs
 Order quantity

5. Reorder point Safety stock In case of certainty
Sales per day x order lead time
In case of certainty
Maximum daily sales x maximum order lead time
In case of uncertainty
Safety stock
Extra stock because of uncertainty
Maximum daily sales x maximum order lead time –
average daily sales x average order lead time

6. Accounts receivable Consequences Credit management
Credit extended to customers
Accounts receivable
Extra capital requirement
Processing and collection costs
Risk of non-payment
Consequences

7. Components of credit management
Establishing credit terms
- Credit period
- Cash discount and discount period
Setting credit standards
Credit monitoring
Collection policy
Factoring (possibility)

8. Factor takes care of and collects all approved receivables
Factoring
Factor takes care of and collects all approved receivables
Outsourcing of credit management and collection of receivables
No risk of non-payment
Possibly financing of accounts receivable by paying in advance
Advantages

9. Cash management Transactional motive Precautionary motive
Motives for maintaining a cash balance
Transactional motive
Precautionary motive
Speculative motive

10. Cash planning Statement of expected receipts and expenditure
Cash flow forecast
Statement of expected receipts and expenditure
Level of detail
On very short term (one to two weeks): daily basis
On longer term (six to twelve month): monthly basis