When a company experiences delayed payments from customers, what effect does this have on its working capital?

When a company experiences delayed payments from customers, it impacts the cash flow, specifically reducing the amount of cash that is available for immediate use. Working capital is defined as current assets minus current liabilities, and cash is a significant component of current assets.

When payments from customers are delayed, the company has less cash coming in, which directly restricts its ability to fund operations, pay suppliers, or invest in new opportunities. As a result, the availability of cash decreases, leading to a decrease in working capital. This can also affect the company's ability to meet its short-term obligations and manage day-to-day operations effectively.

Therefore, the correct choice highlights how decreased cash flow from delayed customer payments directly contributes to a reduction in working capital.