In a finance and investment seminar, one of the facilitators noted that, “Management of debtors is crucial in working capital management”. With reference to the above...

In a finance and investment seminar, one of the facilitators noted that, “Management of debtors is crucial in working capital management”.
With reference to the above statement, discuss three factors that might influence the level of debtors in a firm.

Answers

Factors that might influence the level of debtors in a firm.
Debtors arise when a firm sells on credit. The level of debtors will therefore depend on;
(i) Level of credit sales – where credit sales increase, debtors will also increase and vice versa.

(ii) Terms of trade – a credit term shows when the payment is due for credit sales, possible discount, and applicable interest for late payments. Therefore, a change in credit terms will impact debtors directly. If the terms are relaxed, debtors increase and vice versa.

(iii) Credit policies – a credit policy is a document that sets out how a company sells on credit to its clients and how debts are collected. It contains the amount of risk that a firm is willing to accept in relation to its sales, among other information.

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francis1897 answered the question on November 1, 2022 at 11:30

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