Accounts Receivable and Inventory Management Possible Cash Discount

3 Main Points  Cash Discount Period

 Credit and collection policies
 Analyzing the credit applicant
 Inventory management and control
Credit and Collection Policies of the Firm
- period of time during which a cash discount can be
taken for early payment
 Cash Discount
- a percent reduction in sales or purchase price
allowed for early payment of invoices.

 Seasonal Dating ( consignment - collection

carrying cost - warehouse cost )
- a credit term that encourage buyer of seasonal
products to take delivery before the peak sales period
and to differ payment until after the peak period.

Bad-debt Losses - things you can’t collect. Problems

Credit Standards - minimum quality of credit  Collection
worthiness of a credit applicant that is acceptable to How to collect
firm. - letter
* If you let someone borrow money from your firm - phonecalls or text
you must assure or check first about their - personal visit
background, that they are sustainable enough to pay - legal action
the loan on the due date of the contract. 3 Negotiable Instruments
- warehouse receipts ( quedan - )
Cost Arising from relaxing credit standards - promissory notes ( IOU - a promise to pay a debt )
- larger credit department/staff - check
- additional clerical work Application for credit
- servicing additional accounts  How to apply
- bad debt losses - information
- opportunity cost Analyzing the credit applicant
- obtaining information on the credit applicant
Example of Relaxing Credit Standards - analyzing this to determine the applicants credit
Bong Bong’s company is not operating at full worthiness
capacity and wants to determine if a relaxation of - making credit decision
their standards will enhance profitability.
Length of Credit Period Sources of Information
Credit terms - specify the length of time over which - financial statements
credit is extended to a customer and the discount if - credit rating and reports
any given for early payment for “2/10 net 30” - bank checking
- trade checking
Credit Period - total length of time over which credit - company own experience
is extended to a customer to pay a bill.
Credit analysis E-commerce
- financial statements of the firms ( ration analysis ) - outsourced to third party
- the character of the company
- the character of management Demand
- financial statement of the firm - credit decisions are made
- other individual issues specific to the firm - ledger accounts maintained
- payments processed
Flow Charting - collections initiated

Inventory Management Control

- provides flexibility on the following :
 Purchasing - science of buying
 Production scheduling -
 Efficient - servicing of customer demand

Appropriate level of Inventories

 Cost and benefit

ABC - method of inventory control
A - items most frequently
B - items most rigorously
C - less frequently

1. Forecast wage
2. Ordering cost
3. Carrying cost

 Credit and Collection Supply Chain Management

Credit scoring system - business to business transaction
- assigning numerical factors/ prints to an individual
or corporations
ITR - Income Tax Return
- ask the bank information
Line of Credit ( in supply section )
- bank terminology
- depositing to the local brand align to use utter brand
intentionally.
- use of credit card