Each enterprise uses fixed and working capital. The latter according to its functional purpose is divided into circulation funds and circulating production assets. The following funds belong to circulation funds:
- commercial products in stock;
- cash ;
- shipped marketable products (goods on the way);
- financial assets in settlements with consumers of marketable products.
Often, circulation funds in the form of cash take a different form:
- financial instruments (at the same time, they may be held in accounts in banking or other credit institutions, in issued letters of credit or securities);
- funds located directly at the cash desk or in settlements with counterparties.
For the most efficient cash management, the time of their circulation and the size of the optimal volume are determined, an analysis of cash flows and their forecasting is performed.
Funds circulation in the form of goods in transit are divided into groups:
- goods for which payment terms have not yet arrived;
- products for which the payment period has already expired;
- goods stored by the purchasing organization.
The circulation funds presented in the form of receivables consist of debt:
- suppliers whose payment deadlines have expired;
- all accountable persons ;
- tax authorities (when there was an overpayment of taxes, mandatory payments that are paid to the budget in the form of an advance payment);
- debtors for disputed debts and claims.
Any receivables inevitably divert funds from circulation, therefore, the efficiency of their use is reduced, which can lead the company to a difficult financial condition. Its level is directly related to the settlement system adopted by the organization, the range of products and the state of saturation of the market with similar products. Its specific weight in the entire structure of circulation funds is most often quite large, and therefore requires strict, constant control. The management of this debt provides for the control of the responsible financial services of the organization for the speed of turnover of such funds in the relevant calculations.
Since circulation funds are funds invested in stocks of finished goods; goods already shipped but not paid; funds in settlements with debtors, they are closely related to the process of circulation of goods. These funds do not participate in the formation of the value of goods, but are their direct carriers. All movement of working capital is a continuous single process. At the end of the production cycle, after the manufacture of marketable products, as well as their sale, the entire cost of these funds is reimbursed in the form of revenue from the sale of products (services, works).
Funds circulation are in continuous motion, therefore, provide a circulation of funds. At the same time, the forms of value constantly change: in this way the monetary form becomes commodity, then production, and again commodity and money.
The cash stage of the circulation funds becomes a form of inventories, then in the production stage the inventories turn into finished products, after the sale (commodity stage) of the product it takes on a monetary form. All funds advanced in the form of inventories are returned, and part of the savings, which exceeds the cost of sales, is the profit of the enterprise.
The effectiveness of the use of circulation funds depends on their speed of turnover. The main indicators include the duration of the turnover, the turnover ratio and load.