Working capital is a vital part of a business and can provide the following
advantages to a business:

• Higher Return on Capital
  Firms with lower working capital will post a higher return on capital. Therefore,
  shareholders will benefit from a higher return for every dollar invested in the
  business.
• Improved Credit Profile and Solvency
  The ability to meet short-term obligations is a pre-requisite to long-term solvency.
  And it is often a good indication of counterparty’s credit risk. Adequate working
  capital management will allow a business to pay on time its short-term obligations.
  This could include payment for a purchase of raw materials, payment of salaries,
  and other operating expenses.
• Higher Profitability
  The management of account payables and receivables is an important driver of
  small businesses’ profitability.
• Higher Liquidity
  A large amount of cash can be tied up in working capital, so a company managing
  it efficiently could benefit from additional liquidity and be less dependent on
  external financing. This is especially important for smaller businesses as they
  typically have limited access to external funding sources. Also, small businesses
  often pay their bills in cash from earnings so efficient working capital management
  will allow a business to better allocate its resources and improve its cash
  management.
•  Increased Business Value
  Firms with more efficient working capital management will generate more free
  cash flows which will result in higher business valuation and enterprise value.
• Favourable Financing Conditions
  A firm with a good relationship with its trade partners and paying its suppliers on
  time will benefit from favourable financing terms such as discount payments from
  its suppliers and banking partners.
• Uninterrupted Production
  A firm paying its suppliers on time will also benefit from a regular flow of raw
  materials, ensuring that the production remains uninterrupted and clients receive
  their goods on time.
• Ability to face shocks and peak demand
  Efficient working capital management will help a firm to survive through a crisis
  or ramp up production in case of an unexpectedly large order.
• Competitive Advantage
  Firms with an efficient supply chain will often be able to sell their products at a
  discount versus similar firms with inefficient sourcing