This preview shows page 1. Sign up to view the full content.
Unformatted text preview: a. Discuss, in general, what it means for the brothers to set a credit and collections policy. Answer: When a firm sets its credit and collections policy it determines four things: 1. The credit period, which is the length of time buyers are given to pay for their purchases 2. The discounts that are given for early payment. 3. The credit standards, which are the financial strength requirements for customers to purchase on credit from the firm. 4. The collection policy, which is how hard the company will work to collect slow-paying accounts. These policies determine the level of sales and also the level of accounts receivable. Note that although sales contribute to profitability, additional accounts receivable require the investment of funds, so a firm must take both the profits from additional sales and the additional capital required to fund accounts receivable when it determines a credit policy. Mini Case: 27 - 17...
View Full Document
This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.
- Spring '08