There is a direct relationship between a firms growth and working capital needs. As sales grow, the firm needs to invest more in inventories and debtors. The finance managers should determine levels and composition of current assets, which will help to run the business smoothly. Account receivables are one of the major components of working capital. Receivables are a direct result of credit sales. The sale of good on credit is an essential part of competitive economic system. The credit sales are generally made on open account in the sense that there is no formal acknowledgement of the debt obligation through a financial instrument. The extension of credit involves risk and cost. The objectives of credit management is to promote sales and profit until that point is reached where the return on investment in further funding receivables is less than the cost of funds raised to finance that additional credit.
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