The consideration that determines the optimal size of the firm's investment in current assets is the different costs that are involved in the different short-term financing policies. The considerable costs that are most important are carrying costs and shortage costs. Flexible financing policy is made up off of cash, short-term borrowing and making through with its short-term obligations. It helps the firm so that there will be little to no financial distress. It would cost more to rely on long term borrowing compared to short-term borrowing because its rates are lower