In fact inadequacy or mismanagement of working capital is the leading course of business failures. So its necessary to have an effective financial management.

 A firm may have to face the following adverse consequences from inadequate working capital:

1. Growth may be stunted. It may become difficult for the firm to undertake profitable projects due to non-availability of funds.
2. Implementation of operating plans may become difficult and consequently the firm's profit goals may not be achieved.
3. Operating inefficiencies may creep in due to difficulties in meeting even day to day commitments.
4. Fixed assets may not be efficiently utilised due to lack of working funds, thus lowering the rate of return on investments in the process.
5. Attractive credit opportunities may have to be lost due to paucity of working capital.
6. The firm loses its reputation when it is not in a position to honour its short-term obligations. As a result, the firm is likely to face tight credit terms.
7. Post Payment: When there exists lesser working capital in the organization it cannot pay cash on due dates.