Report By: Manuelito David
Professor: Mrs.Teung

A current assets.Account receivable amount of money owed to a film by customer who have bought goods or service on credit. . the account receivable account is also called receivables.

Credit policy can have a significant influence on sales. These influences are largely beyond the control of the financial manager.Credit and Collection Policies Economic conditions. . product pricing. product quality. and the firm’s credit policies are the chief influences on the level of firm’s accounts receivable.

.Credit Standards The minimum quality of creditworthiness of a credit applicant that is acceptable to the firm.

if any. Cash Discount Period the period of time during which a cash discount can be taken for early payment. given for early payment. Seasonal Dating credit terms that encourage the buyer of seasonal products to take delivery before the peak sales period and to defer payment until after the peak sales period .Credit Terms Credit Period specify the length of time over which credits is extended to a customer and the discounts. Cash Discounts a percent (%) reduction in sales or purchase price allowed for early payment of invoices.

Collection Policy and Procedures The firm determines its overall collection policy by the combination of collection procedures it undertakes. phone calls. personal visits. One of the principal policy variables is the amount of money spent on collection procedures. faxes. . and legal action. These procedures include such things as letters.

Credit and Collection Policies *SUMMARY*  We see that the credit and collection policies of firm involve several decisions: 1) The quality of the account accepted. 4) Any special terms. . 2) The length of the credit period. such as seasonal datings. 5) The level of collection expenditures. 3) The size of the cash discount given.

dispute-management process to replace the ad hoc process. An incentive plan for collection staff to spur performance. Technological enhancements to automate the collection . rigorous collection process with increased customer contract to enforce agreed payment terms. documented. A formal.Business Finance  The company implemented the following initiatives: • • • • • A redesigned. Redesigned reports to enable management to monitor progress of receivables management and identify serious risks.

3) Making the credit decision. . 2) Analyzing this information to determine the applicant’s creditworthiness.Analyzing the Credit Applicant 1) Obtaining information on the applicant.

especially small ones.Sources of Information  A number of services supply credit information on business. but for some accounts. . the cost of collecting this information may outweigh the potential profitability of the account.

Credit-Scoring Systems a system used to decide whether to grant credit by assigning numerical scores to various characteristics related to creditworthiness. .Sequential Investigation Process the amount of information collected should be determined in relation to the expected profit from an order and the cost of investigation.

. A limit to the amount of credit extended to an account. and collection efforts on tardy accounts are initiated. Ledger accounts are maintained.Credit Decision and Line Credit a decision must be reach about the disposition of the account. Purchaser can buy on a credit up to that limit. Outsourcing Credit and Collections the entire credit/collection function can be outsourced. payments are processed.

.Classification: What to Control? ABC method of Inventory control method that controls expensive inventory items more closely than less expensive items.

Optical Order Quantity steady demand no safety stock.Economic Order Quantity: How much to Order? Economic Order Quantity (EOQ) the quantity of an inventory item to order so that total inventory costs are minimized over the firm’s planning period. .

• Order Point the quantity to which inventory must fall in order to signal that an order must be placed to replenish an item. • Lead Time the length of time between the placement of an order for an inventory item is received in inventory. .Order Point: When to Order?  The quantity to which inventory must fall in order to signal a reorder of the EOQ amount.

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