Business Administration - Management FIS403 Study Guide - Final Guide: Credit Risk, Accounts Receivable, Finished Good
19 Dec 2016
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Our average collection period is 15 days. Average daily sales = 10,000,000/365 = ,397. 26. Average accounts receivable = ,397. 26 x 15. If we allow our customers to pay after 30 days instead. Average accounts receivable = ,397. 26 x 30. Length of the credit period: perishability and collateral value, consumer demand, cost, profitability and standardization, credit risk, size of the account, competition, customer type. 3 factors to consider in deciding whether to extend credit: E. g. 2% / 10 days / net 30 days. Ratio of bad debts to credit sales. You knew them for a long time. Credit rating of the company they are extending credit to. You got to know what the collecting"s are telling you. Understand what the number means in the end. Does the customer go into hiding or attempts to work things out. Strength of a corporate character comes from information on fraudulent activities, legal disputes, union problems, dealings with other suppliers, willingness to supply credit information.
