5. Turnover of Circulating Capital
The speed with which the operating cycle completes its round (i.e., cash → raw materials →
finished product → accounts receivables → cash) plays a decisive role in influencing the
working capital needs.
Credit Terms
The credit policy of the firm affects the size of working capital by influencing the level of
book debts. Though the credit terms granted to customers to a great extent depend upon the
norms and practices of the industry or trade to which the firm belongs; yet it may endeavor to
shape its credit policy within such constraints. A long collection period will generally mean
tying of larger funds in book debts. Slack collection procedures may even increase the
chances of bad debts. The working capital requirements of a firm are also affected by credit
terms granted by its creditors. A firm enjoying liberal credit terms will need less working
capital.