Companies have found that offering discounts to customers in return for early payment can be counterproductive in terms of the resulting adverse effect on profitability. This is when the reduction in profitability outweighs any marginal improvements gained from the benefit of a reduction in the working capital requirement. Required: Given the above critically discuss the alternative measures to offering discounts to customers that could prove more effective in reducing the working capital requirement for a company with only minimal potential reductions in profitability.

Companies have found that offering discounts to customers in return for early payment can be counterproductive in terms of the resulting adverse effect on profitability. This is when the reduction in profitability outweighs any marginal improvements gained from the benefit of a reduction in the working capital requirement.

Required:

Given the above critically discuss the alternative measures to offering discounts to customers that could prove more effective in reducing the working capital requirement for a company with only minimal potential reductions in profitability.