Factors which affect the requirements of working capital are:
(a) Nature of business, as trading organisation requires smaller amounts of working capital than manufacturing organisations as there is no processing. Service industries requires less working capital as they do not have to maintain inventory.
(b) Scale of operations, as firms operating on a higher scale require more working capital as their quantum of inventory and debtors is generally high.
(c) Business cycle, as in case of ****, larger working capital is required as the sales and production are more.
(d) Seasonal factors, as peak season requires higher working capital than lean season due to higher level of activity.
(e) Production cycle, as working capital requirement is higher in firms with longer processing cycle.
(f) Credit allowed to customers results in higher amount of debtors, increasing the working capital requirement.
(g) Credit availed from suppliers reduces the working capital requirement.
(h) Operating efficiency, as firms managing their raw materials efficiently require lesser working capital.
(i) Free and continuous availability of raw materials, enables the firms to keep lesser stock and hence work with smaller working capital.
(j) Higher Growth prospects, will require larger amounts of working capital so that the firm is able to meet higher production and sales targets
(k) Level of competition, as higher competition requires larger stocks to meet urgent orders from customers and thus higher working capital.
(l) Inflation, increases the working capital requirements as larger amount of money is required to maintain a constant volume of production and sales.
