Several key components go into effective working capital management.nnManaging LiquiditynnManaging working capital includes ensuring your business has the cash resources to pay for business needs. If too many of the business's resources are tied up in illiquid assets, it may have difficulty maintaining cash flow or paying short-term debts.nnManaging Accounts ReceivablennTracking your accounts receivable is essential in understanding and predicting your working capital availability. You should keep track of several ratios when managing your accounts receivable.nnCollection ratio: Also known as Days Sales Outstanding (DSO), this ratio measures a company's efficiency in collecting payment from outstanding invoices. To calculate the average collection period, divide the average total accounts receivable during an accounting period by the total net credit sales and multiply the quotient by the average number of days in the cycle.nAging report: This is a metric that helps you keep track of when invoices are due and past due. You can use this metric to help send timely reminders for accounts due.nManaging Accounts PayablennAccounts payable (AP) refers to money your company owes to vendors, suppliers, contractors, or other businesses. Managing your AP is vital because late payments could increase costs and damage your relationship with the companies your business relies on to get inventory, supplies, maintenance, and more.nnManaging Short-Term DebtnnPaying off your company's debts from short-term financing is important to avoid late penalties and damaging your business credit. You may need additional short-term or long-term financing in the future and want a positive payment record. One of the key ways to do this is to ensure your using the short-term financing programs best suited to your business's cash flow cycle.nnManaging InventorynnInventory is the primary asset your business uses for sales revenue. You want to ensure you have enough inventory in stock to meet customer needs but not so much inventory that too much of your liquidity is tied up in assets that won't move for a while. Track your inventory turnover ratio and cost of goods sold (COGS) to measure your inventory efficiency.