Impact of working capital management on profitability in laundry services: recent studies (2017-2025)
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Working Capital Management and Profitability in Laundry Services: Key Insights
Importance of Working Capital Management for Profitability
Recent studies consistently show that effective working capital management is crucial for improving profitability in service-based businesses, including laundry services. Efficient management of current assets and liabilities—such as cash, receivables, inventory, and payables—directly impacts a firm's ability to generate profits and maintain liquidity Nguyen2020Umar2023Admasu2019+1 MORE.
Cash Conversion Cycle (CCC) and Its Components
The cash conversion cycle (CCC) is a central measure in working capital management. Research finds that a shorter CCC, achieved by reducing the time to collect receivables and sell inventory, is associated with higher profitability. This is because faster collection and inventory turnover free up cash for other profitable uses Nguyen2020Umar2023Admasu2019+1 MORE. Specifically, studies highlight that:
- Shortening accounts receivable days and inventory days increases profitability Nguyen2020Umar2023Admasu2019+1 MORE.
- Delaying payments to suppliers (accounts payable) can have mixed effects, with some studies finding no significant impact on profitability, while others note potential reverse causality Knauer2013Sharma2011Shiba2023.
Optimal Working Capital Levels
Research from various countries, including Poland and Vietnam, suggests that there is an optimal level of working capital. Profitability increases as working capital is optimized, but excessive working capital can start to negatively affect profits. This means laundry service businesses should aim for a balanced approach—enough working capital to operate smoothly, but not so much that it ties up resources unnecessarily Nguyen2020Anton2020.
Inventory and Receivables Management
Maintaining low inventory levels and reducing the time to collect receivables are repeatedly shown to reduce costs and boost profitability. Offering discounts for early payments and focusing on credit transactions with reliable vendors are practical strategies to achieve this Umar2023Admasu2019Shiba2023.
Firm Size, Growth, and Other Factors
Other factors such as firm size, sales growth, leverage, and company age also influence profitability. Larger and growing firms tend to benefit more from efficient working capital management, as they can leverage economies of scale and better negotiate payment terms Nguyen2020Admasu2019.
Conclusion
For laundry service businesses, recent research from 2017 to 2025 underscores that optimizing working capital management—especially by shortening the cash conversion cycle, managing inventory efficiently, and collecting receivables quickly—can significantly enhance profitability. However, it is important to avoid both under- and over-investment in working capital, aiming instead for an optimal balance that supports smooth operations and financial health Nguyen2020Umar2023Admasu2019+2 MORE.
Sources and full results
Most relevant research papers on this topic
Impact of Working Capital Management on Firm’s Profitability: Empirical Evidence from Vietnam
Optimizing working capital management, including shortening collection times, accelerating inventory flow, and maintaining low payment times to creditors, can significantly increase a firm's profitability in Vietnam.
Working Capital Management and Firm Profitability: An Empirical Review
Effective working capital management, including improving cash conversion cycle, credit transactions, and maintaining optimal inventory levels, positively correlates with firm profitability.
Effect of Working Capital Management on Firm Profitability
Working capital management positively correlates with profitability in Indian firms, with inventory days and accounts payable days negatively impacting profitability, while accounts receivable days and cash conversion period positively impacting it.
The Impact of Working Capital Management on Future Profitability in Japanese Companies
Shortening working capital cycles through days inventories and days accounts receivable can increase profitability in Japanese companies, while days accounts payable has no significant impact.
The Impact of Working Capital Management on Firm Profitability: Empirical Evidence from the Polish Listed Firms
Working capital positively impacts the profitability of Polish firms up to a break-even point, but then begins to negatively affect it after this point.
Role of working capital management in profitability considering the connection between accounting and finance
Rational working capital management significantly impacts profitability, with accountants' professional stage enhancing their skills in project evaluation, managing funding resources, and working capital management.
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