Effect on Working Capital

This query is : Resolved

Guest

Guest (Querist)

17 December 2009 Does provision for doubtful debts and provision for discount on debtors has any effect on working capital? If yes, can u plz explain how it affects?

Thank you

Rasesh

Rasesh (Expert)
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17 December 2009 If you have not made the provision, then the Debtors would include an amount which is not recoverable. Such debtors artificially keep your working capital requirements at a higher level.

Once a provision has been made and the debtors' reduced to that extent, the actual picture gets reflected in your working capital cycle.