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What is average working capital? Importance and how to optimize average working capital

Average working capital is the “blood” of a business – it determines the ability to maintain daily operations, seize market opportunities, manage risks, and demonstrate financial health. Businesses that manage their working capital well will have a solid foundation for long-term growth.

In this article, let's Bizzi Let's analyze the concept in more detail to understand what average working capital is! 

What is average working capital?

Average Working Capital is a financial ratio that reflects the average amount of current assets used by a business over a given period of time (e.g. a quarter, a year). It shows a more general solvency and short-term financial health of a business than working capital at a specific point in time.

What is the formula for calculating average working capital?

In there: 

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Average working capital gives a more general picture of a company's short-term financial health and solvency than working capital at a specific point in time.

What is the role of average working capital?

Working capital operates as a continuous financial flow throughout the enterprise. It keeps production and business activities uninterrupted, cost optimization and capital turnover, balancing liquidity and profitability. A healthy “flow” will help businesses operate smoothly, seize opportunities, and develop sustainably.

Here is the role of average working capital for each business:

Ensure short-term solvency

Maintain continuous operation

Increase financial flexibility

Risk Management Support

Reflects the financial health of the business

Optimizing capital efficiency

What are the factors that affect average working capital? 

Factors that affect average working capital include: industry, size of business, financial situation, business cycle, sales and payment policies, inventory management, receivables and payables management, and other macroeconomic factors. 

Understanding these factors helps businesses build effective working capital management strategies, ensuring continuous and stable business operations. 

Understanding the influencing factors helps businesses build effective working capital management strategies.

How to optimize average working capital with Bizzi technology solutions

To optimize average working capital, businesses can apply technology solutions to manage inventory, optimize payment and debt collection processes, and improve cost management efficiency. By applying these technology solutions, businesses can optimize average working capital, minimize financial risks, improve operational efficiency, and enhance competitiveness. 

Bizzi is a comprehensive solution that helps businesses transform digitally, optimize workflows and improve operational efficiency. Suitable for most businesses of all sizes, especially those with many input invoices, wanting to optimize invoice and cost processing, Bizzi provides a solution set that integrates many features to help businesses solve financial problems effectively and concisely:

Speed up accounts payable and receivable processing with Accounts Receivable Management (ARM) Bizzi's:

Automate your invoicing process with IPA + 3way:

Optimize cash flow with Bizzi Expense:

Bizzi provides a suite of integrated solutions with many features to help businesses solve financial problems effectively and concisely.

Reduce operating costs:

Provide real-time financial reporting and analysis:

Seamless integration with ERP and accounting software:

Conclude

Through the above article of Bizzi, hopefully readers will have a more specific view of what average working capital is. In general, average working capital is not just a number, but a measure of the health and operational efficiency of the business. To optimize this index, businesses need a system financial management efficiently, automate manual processes.

Technology solutions such as the Bizzi platform are powerful tools to help businesses control and optimize working capital comprehensively. Bizzi.vn Helps shorten working capital cycle, optimize debt - cost - cash flow management, support quick and accurate decisions, thereby minimizing risks and improving average working capital efficiency.

To get advice on suitable solutions and experience all the features of Bizzi, register to make an appointment here:  https://bizzi.vn/dat-lich-demo/

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