Professional Documents
Culture Documents
Short Term Financing Lecture Notes
Short Term Financing Lecture Notes
and Current
Asset
Management
Current Liabilities:
Accounts Payable
Accruals
Short-Term Debt
Taxes Payable
Fixed Assets:
Investments
Plant & Machinery
Land and Buildings
Long-Term Financing:
Debt
Equity
14-2
14-3
14-4
14-5
14-6
14-7
14-8
14-9
For example, with credit terms of 2/10 net 30, the discount
is 2%, the discount period is 10 days, and the credit period
is 30 days.
Copyright 2009 Pearson Prentice Hall. All rights reserved.
14-10
14-11
Credit Monitoring
Credit monitoring is the ongoing review of a firms
accounts receivable to determine whether customers are
paying according to the stated credit terms.
Slow payments are costly to a firm because they
lengthen the average collection period and increase the
firms investment in accounts receivable.
Two frequently used techniques for credit monitoring
are the average collection period and aging of accounts
receivable.
14-12
Credit Monitoring:
Average Collection Period
The average collection period is the average number of
days that credit sales are outstanding and has two parts:
The time from sale until the customer places the payment in
the mail, and
The time to receive, process, and collect payment.
14-13
Credit Monitoring:
Aging of Accounts Receivable
14-14
Credit Monitoring:
Collection Policy
The firms collection policy is its procedures for
collecting a firms accounts receivable when they are
due.
The effectiveness of this policy can be partly evaluated
by evaluating at the level of bad expenses.
As seen in the previous examples, this level depends
not only on collection policy but also on the firms
credit policy.
14-15