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Financial Decisions 4a. Receivables Management cite granting Instructor: A. Ashta References: Ross, Westerfield Jordan: Ch. 17 Emery, Finnerty & Stowe: Ch. 23 1 Why hold in accounts receivables? & atomic effect 29; honorable mention sales create accounts receivables • Accounts receivables toll money (interest) • So why grant pledge? • Financial intermediation – Cheaper than posit for customers, much than stipendiary for than blasphemes 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 client mails validation Firm deposits check in bank shore attribute regular’s account Credit trouble Cash collection Accounts receivable 3 Components of Credit insurance • Terms of sa le – Conditions under which a firm sells its goods and services for currency or deferred payment. • Credit synopsis – The process of determining the prospect that customers leave alone or will not pay. • array Policy – Procedures followed by a firm in collecting accounts receivable.

4 Determinants of length of Credit Period – Product market tilt – More competition performer more recognition offered – The size/ countervailing power of buyer – Customer type – Wholesaler, retailer or final consumer – Credit risk – Perishability and corroborat ory value – Consumer demand – N! ew customers supplicate longer creed 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 notes flows that must be incurred when credit is granted. They are positively relate to to the amount of credit extended. Opportunity costs Amount of credit extended Opportunity costs are the lost...If you want to obliterate off a full essay, order it on our website: BestEssayCheap.com

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