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Financial Decisions 4a. Receivables Management character reference granting Instructor: A. Ashta References: Ross, Westerfield Jordan: Ch. 17 Emery, Finnerty & Stowe: Ch. 23 1 Why hold in accounts receivables? & atomic sum 29; reference work sales create accounts receivables • Accounts receivables cost money (interest) • So why grant authority? • Financial intermediation – Cheaper than posit for customers, more(prenominal) than paid for than cashboxs for suppliers • Collateral – The inventory with a customer is more valuable to a supplier than to customer’s bank • Information costs – Easier for supplier to assess acknowledgementworthiness 2 The bills Flows from Granting Credit Credit sale is made Time invitee mails validation Firm deposits check in bank lodge attribute sloshed’s account Credit guidance Cash collection Accounts receivable 3 Components of Credit insurance & bull; Terms of sale – Conditions under which a firm sells its goods and services for currency or deferred payment. • Credit summary – The process of determining the prospect that customers result or will not pay. • array Policy – Procedures followed by a firm in collecting accounts receivable.

4 Determinants of length of Credit Period – Product market competition – More competition performer more realization offered – The size/ countervailing power of purchaser – Customer type – Wholesaler, retailer or final consumer – Cr edit risk – Perishability and corrobo! ratory value – Consumer demand – New customers charter longer character reference period – Cost, gainfulness and standardization 5 cost of Granting Credit Cost in dollars Optimal amount of credit Total costs Carrying costs Carrying costs are the finances flows that must be incurred when credit is granted. They are positively related to to the amount of credit extended. Opportunity costs Amount of credit extended Opportunity costs are the lost...If you want to take up off a full essay, order it on our website: BestEssayCheap.com

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