explain why and how discounts and penalties are used to manage working capital explain why and how receivables can be sold. the key differences between the direct and allowance method for bad (and...

Working capital management is very important for the smooth running of the business for an organization. The entities are using discounts and penalties to manage working capital so that there will be no requirement for external borrowings. If the company is running a shortage of working capital then the companies provide cash discounts to customers for early payment because short-term borrowings are having higher interest costs as compared to cash discounts provided. In another example, in case of a shortage of cash, the company pays a penalty for delayed payment to the supplier whereas in the case of borrowings the cost will be higher (Sanjay Bulaki Board, 2018). So, the penalties and discounts are used to save the cost of raising...