Definition for : Negative working capital
The operating cycles of companies with negative Working capital are such that, thanks to a favourable timing mismatch, they collect funds prior to disbursing certain payments. There are two basic scenarios: 1) Supplier credit is much greater than inventory turnover (see Days' inventory ratio), while at the same time, customers pay quickly, in some cases in cash; 2) customers pay in advance. A low or negative Working capital is a boon to a company looking to expand Without recourse to External capital. Efficient companies, in particular in mass-Market retailing, all benefit from low or negative Working capital.
(See Chapters 11 and 12 of the Vernimmen)
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