" A company has the policy of giving liberal credit to its customers in order to increase the sales."

Identify the factor affecting working capital requirement in the above situation.

Credit Allowed

The correct answer is option 4- Credit Allowed.

Different firms allow different credit terms to their customers. These depend upon the level of competition that a firm faces as well as the credit worthiness of their clientele. A liberal credit policy results in higher amount of debtors, increasing the requirement of working capital.