The final issue a firm should consider in its

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Unformatted text preview: Table 14.2. Credit Monitoring credit monitoring The ongoing review of a firm’s accounts receivable to determine whether customers are paying according to the stated credit terms. The final issue a firm should consider in its accounts receivable management is credit monitoring. Credit monitoring is an ongoing review of the firm’s accounts receivable to determine whether customers are paying according to the stated credit terms. If they are not paying in a timely manner, credit monitoring will alert the firm to the problem. Slow payments are costly to a firm because they lengthen the average collection period and thus increase the firm’s investment in accounts receivable. Two frequently cited techniques for credit monitoring are average collection period and aging of accounts receivable. In addition, a number of popular collection techniques are used by firms. CHAPTER 14 Working Capital and Current Assets Management 619 Average Collection Period The average collection period is the second component of the cash conversion cycle. As noted in Chapter 2, it is the average number of days that credit sales are outstanding. The average collection period has two compon...
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This document was uploaded on 01/19/2014.

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