What are the main reasons of negative working capital?

Negative working capital can be good at certain instances.

This happens because customers pay upfront and so rapidly, the business has no problems raising cash. In these companies, products are delivered and sold to the customer before the company ever pays for them.

It may pause certain problems also.

Diversion of revenue funds for capital investments, personal purpose like drawings etc, or for certain big unexpected expenditures like fines, legal fees, compensations etc often makes fund crisis and result in Negative working capital. 

Negetive working capital means when the crrent liabilities exceeds with current assets. Some companies can generate cash so quickly (like restaurents) they have negetive working capital.

This happens because customer pay upfront and rapidly and business has no problem in raising cash.

Negative working capital is a sign of managerial efficiency in a business with low inventory and accounts receivable (which means they operate on an almost strictly cash basis). In any other situation, it is a sign a company may be facing bankruptcy or serious financial trouble. 

1. Poor Management

2. Unexpected Contingencies

3. Seasonality

4. Selling goods at a lower cost

5. Clients not paying on time

Negative working capital refer to Current Assets < Current Liabilities

The main Reasons are:-

1- Company didn't make balance in capital structure with investment

which mean short term investment has to finance by short term liabilities

also for long term investment has to finance by long term liabilities

2- Short at Activity cycle

Refer to purchasing raw material, goods, paying wages and pay other expenditures but production and sales are very slow to convert production elements to sales even cash or credit.

3- Recession & Losses:-

Company perform to finance its activities but when convert to sales at situation of recession which Leads to Bad debit or losses.

4- Company Facing non normal circumstances like fire, taxes, technology changing, new issues, and new payments

Agreed with colleagues answers

Well done by Divyesh Patel.

Negative working capital cannot be in any situtation, the service industries like restaurants, fast foods, travelling agencies, schools etc they received rapid cash payments but still they cannot make negative working capital.  there should be a contingency plan to utter the needs of emergencies.

Payment for taxes, utilities, healthcare issues, accidential losses, urgent purchase or raw materials must be protected.

So negative capital is maintly because of miss management and selling goods at lower of cost.

AGREE WITH MR AHMAD ABD WAHAB ANSWER 

IT IS DIRECT & THE BEST 

I agree with Mr Divyesh Patel... poor management is probably the main cause of a negative cash flow.

However there are many more issues to put in account and resolving the cash flow problem and making sure the customer is informed about these issues ... give the customer the facts and the choice what they want to do to help resolving an issue like this

• structural or weather problems can delayed the project resulting higher cost  
• material is more expensive 
• material has to be brought in from a different source
• additional employees needed
• not calculated materials and cost for a project can cause this problem, however can be corrected by eliminating (a floor in a building or equipment not needed 
• cost of goods and resell value
• material delivery issues
• penalties from the customer