Main benefits or advantages of maintaining adequate level of working capital can be explained as follows:
1. Maintains Solvency
Adequate working capital ensures smooth operation of business activities without interruption. Because enough working capital strengthens the solvency position of the firm.
2. Maintains Goodwill
Maintaining adequate working capital facilitates prompt payment of short-term liabilities. Timely payment of raw materials, salary and other overheads helps to maintain the goodwill of the company.
3. Discount Facility
Bulk purchase of raw materials is possible because of sufficient working capital. Because of large volume purchase and prompt payment, the firm can avail of the discount facility.
4. Maintains Liquidity
Sufficient working helps to maintain proper liquidity in the business.
5. Regular Supply
Regular supply of raw materials and accessories is possible due to adequate working capital. It ensures regular production without a break.
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6. Loan Facility
Adequate working capital helps the company to obtain loan from financial institutions. Banks and other financial institutions provide loan on the basis of solvency, liquidity and goodwill of the company.
7. Face Crisis
Maintaining adequate level of working capital helps the business firm to survive at the time of crisis and emergencies.
8. Increase Efficiency
Sufficient working capital ensures smooth operation, maintains solvency and increases the goodwill. These factors create high morale which helps to increase efficiency of the firm.
