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Accounts Receivable Management: 2005 by Thomson Learning, Inc
Accounts Receivable Management: 2005 by Thomson Learning, Inc
A/R
Time ==>
Accounts Disbursement
< Payable > < Float >
Length of terms
Security
Amounts involved
Resource transferred (goods vs. money)
Extent of analysis
Financial Motive
Operating Motive
Contracting Motive
Pricing Motive
All reasons are related to market imperfections
Marketing contact
Credit investigation
Financial analysis
Copyright 2005 by Thomson Learning, Inc.
Basic Credit Granting Model
S - EXP(S)
NPV = ----------------- - VCR(S)
1 + iCP
Where:
No Material Yes
New/increased Redo credit
credit limit change in
investigation
customer status
Yes No Check new A/R
Size of proposed total vs credit lmt
credit limit
Record
disposition
Large Medium Small
No
Extend Credit
Indepth Moderate Minimal Yes
credit invest. credit invest. credit invest.
Set up,post
A/R, ship
Copyright 2005 by Thomson Learning, Inc.
Credit Standards
Nonfinancial
– concerned with willingness to pay, character
Financial
– ability to pay, financial ratios etc.. (other C’s of credit)
Credit scoring models
– Example:
Competition
Operating cycle
Type of good (raw materials vs finished goods,
perishables, etc.)
Seasonality of demand
Consumer acceptance
Cost and pricing
Customer type
Product profit margin