What are the 4 main components of working capital

Cash Management: Cash is one of the important components of current assets

1. Cash Management.

Cash is one of the important components of current assets. It is needed for performing all the activities of a firm, i.e. from acquisition of raw materials to marketing of finished goods. Therefore it is essential for a firm to maintain an adequate cash balance. One of the important functions of a finance manager is to match the inflows and outflows of cash so as to maintain adequate cash. 

2. Receivables Management:

The term receivable is defined as any claim for money owed to the firm from customers arising from sale of goods or services in normal course of business. The term account receivable represents sundry debtors of a firm. It is one of the significant components of working capital next to cash and inventories.

3. Inventory Management:

Inventory constitutes a major part of total working capital. Efficient management of inventory results in maximization of earnings of the shareholders. Efficient inventory management consists of managing two conflicting objectives: Minimization of investment in inventory on the one hand; and maintenance of the smooth flow of raw materials for production and sales on the other.
Therefore the objective of a finance manager is to calculate the level of inventory where these conflicting interests are reconciled. Like cash, a firm holds inventory for transaction, precautionary and speculative motives.

4. Accounts Payable Management:

Payables or creditors are one of the important components of working capital. Payables provide a spon­taneous source of financing of working capital. Payable management is very closely related with the cash management. Effective payable management leads to steady supply of materials to a firm as well as enhances its reputation.
It is generally considered as a relatively cheap source of finance as suppliers rarely charge any interest on the amount owed. However, trade creditors will have a cost as a result of loss of enjoying cash discount on cash purchases.