MANAGEMENT

Detailed explanation-1: -If a firm adopts liberal credit policy in respect of sales, the amount tied up in debtors will also be higher. Obviously, higher book debt means more working capital. On the other hand, if the firm follows, tight credit policy, the magnitude of working capital will decrease.

Detailed explanation-2: -A credit policy is a set of terms that lays out how your company will issue credit to its clients and collect unpaid debts. Anytime you invoice a client for services and begin working before the client pays you, you’re technically working on credit, even if you don’t have a formal credit policy.

Detailed explanation-3: -The cause of the decrease in working capital could be a result of several different factors, including decreasing sales revenues, mismanagement of inventory, or problems with accounts receivable.

Detailed explanation-4: -The production cycle and credit and collection policies of the firm will have an impact on Working Capital requirements. Therefore, they should be given due weightage in projecting Working Capital requirements.

Detailed explanation-5: -Working capital affects many aspects of your business, from paying your employees and vendors to keeping the lights on and planning for sustainable long-term growth. In short, working capital is the money available to meet your current, short-term obligations.