Sales level is one of the important factors which determines the size of receivable of the firm. If the firm wants to increase the sales level, they have to liberalise their credit policy and terms and conditions. When the firms maintain more sales, there will be a possibility of large size of receivable 2. Credit Policy Credit policy is the determination of credit standards and analysis. It may vary from firm to firm or even some times product to product in the same industry. Liberal credit policy leads to increase the sales volume and also increases the size of receivable. Stringent credit policy reduces the size of the receivable 3. Credit Terms Credit terms specify the repayment terms required of credit receivables, depend upon the credit terms, size of the receivables may increase or decrease. Hence, credit term is one of the factors which affects the size of receivable. 4. Credit Period It is the time for which trade credit is extended to customer in the case of credit sales. Normally it is expressed in terms of Net days! 5. Cash Discount Cash discount is the incentive to the customers to make early payment of the due date. A special discount will be provided to the customer for his payment before the due date. 6. Management of Receivable It is also one of the factors which affects the size of receivable in the firm. When the management involves systematic approaches to the receivable, the firm can reduce the size of receivable Exercise 4 The board of directors of Aravind mills limited request you to prepare a statement showing the working capital requirements for a level of activity of 30,000 units of output for the year. The cost structure for the company's product for the above mentioned activity level is given below. t12 Raw materials Direct labour Overheads Total Profit Cost per Unit (Rs.) 20 5 15 40 10 Selling price 50 (a) Past experience indicates that raw materials are held in stock, on an average for 2 months. (b) Work in progress (100% complete in regard to materials and 50% for labour and overheads) will be half a month's production. (c) Finished goods are in stock on an average for 1 month. (d) Credit allowed to suppliers 1 month. (e) Credit allowed to debtors: 2 months. (1) A minimum cash balance of Rs 25,000 is expected to be maintained. Prepare a statement of working capital requirements