Identify the true statement, out of the below given statements :

Availability of Credit from suppliers reduce working capital requirement

The correct answer is option (4)- Availability of Credit from suppliers reduce working capital requirement.

Working capital refers to the funds needed to cover day-to-day operational expenses.

Credit from suppliers means that the business is allowed to delay payment for goods or services purchased. This delays cash outflow, effectively reducing the need for immediate working capital, as the business does not need to pay for goods right away. Hence, the availability of credit from suppliers reduces the working capital requirement because the business has more time to use its available funds.

Credit Availed: Just as a firm allows credit to its customers it also may get credit from its suppliers. To the extent it avails the credit on purchases, the working capital requirement is reduced.

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.

** Availability of Credit from suppliers reduces working capital requirement. When suppliers provide credit terms, it allows a company to delay payment for goods or services received, effectively extending the time it has to use its own funds (working capital). This, in turn, can reduce the immediate need for a higher level of working capital.