A company wishes to reduce the amount of working capital it requires to finance its operations. Which of the following would be the least effective way of reducing working capital requirements?

Question

Quizplus · Accepted Answer

Refusing to sell on credit to any customer would result in a loss of potential revenue and customers. This would not reduce working capital requirements effectively. On the other hand, options A, B, and D would all help to reduce working capital by either increasing cash inflows or decreasing cash outflows. Of these options, offering a discount for early payment by debtors would likely be the most effective as it would provide an incentive for customers to pay sooner, thereby increasing cash inflows and reducing the amount of working capital needed to finance operations.

A Company Wishes to Reduce the Amount of Working Capital