Answer :

Costs that increase as a firm acquires additional current assets are called Carrying costs.

Extending customer payment terms means that customers will incur higher interest rates on last-minute payments, thereby reducing their incentive to pay. The longer the collection takes, the longer the operating cycle. The operating cycle refers to the number of days it takes a business to receive inventory, sell inventory, and sell inventory to raise cash.

This cycle plays an important role in determining the efficiency of your business. An increase in working capital or a decrease in current liabilities will increase net working capital. The cash cycle is calculated by subtracting the payment period from the duty cycle. Higher inventory turns to mean shorter take-back periods and shorter operating cycles. As a result, cache cycles are shortened.

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