STF-Ch08-Slides-Pres-Version

Sources fluctuating current assets short term sources

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Unformatted text preview: ts Long-Term Sources Fluctuating Current Assets Short-Term Sources S/T Sources Long-Term Sources Long-Term Sources Short-Term Sources Copyright 2011 - The Resource Alliance - All Rights Reserved 8 Management of Credit and Accounts Receivable (A/R) Relationship Between Treasury and Credit Management Trade Credit Policies Billing and Collection Methods Forms of Credit Extension Cash Application Considerations Pertaining to Terms of Sale Financing Accounts Receivable (A/R) Copyright 2011 - The Resource Alliance - All Rights Reserved 9 Relationship Between Treasury and Credit Management Separate functions Credit manager administers policies that establish credit standards, define terms of sale, approve credit sales, and set individual and aggregate credit limits A/R is created once a sale is made and trade credit is Copyright 2011 - The Resource Alliance - All Rights Reserved 10 Trade Credit Policies To ensure consistent application and fairness, companies should maintain written credit policies and procedures that clearly define their: ◦ Credit standards ◦ Credit terms ◦ Discount terms ◦ Collection policies Copyright 2011 - The Resource Alliance - All Rights Reserved 11 Trade Credit Standards Two ◦ ◦ Establish credit acceptance criteria that represent a maximum amount of payment risk the company is willing to assume Decide whether to approve a credit applicant under the criteria, and if approved, set a credit limit for that applicant Two ◦ ◦ Stage Credit Granting Process: Key Considerations If standards are too strict, sales could be lost If standards are too lenient, bad debt loss and late payments may be increased Copyright 2011 - The Resource Alliance - All Rights Reserved 12 Credit Information Sources Company must consider the type, quantity and cost of information when establishing a method for analyzing credit requests Credit information is gathered in stages from both internal and external sources At each stage, costs are weighed against expected benefits Copyright 2011 - The Resource Alliance - All Rights Reserved 13 The Five C’s of Credit Character An intent or willingness to pay as evidenced by payment history Capacity Current and future financial resources that can be committed to pay obligations Capital Short- and long-term financial resources to supplement insufficient cash flow for payments Collateral Assets or guarantees available to secure an obligation if payment is not made Conditions General economic environment and e...
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