Economic environment and economic conditions for the

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Unformatted text preview: conomic conditions for the customer and the seller Copyright 2011 - The Resource Alliance - All Rights Reserved 14 Quantitative Credit Analysis Most ◦ ◦ ◦ often used measures: Liquidity and WC ratios Debt management and coverage ratios Profitability measures Consumer Credit Scoring Process 1. Differentiating risks 2. FICO Score 3. Set cutoff score 4. Applying further analysis Copyright 2011 - The Resource Alliance - All Rights Reserved 15 Why Quantitative Credit Analysis is Not as Effective for B2B The available databases are much smaller for B2B The per-transaction exposure is usually much larger Impact of one large default Difficult to obtain financial info for some customers, especially for smaller, private companies Copyright 2011 - The Resource Alliance - All Rights Reserved 16 Other Credit Considerations Credit ◦ ◦ Terms Both terms and limits should be clearly defined, both individual and aggregate Some considerations: Credit policy constraints Financing implications Income and expenses related to granting credit Copyright 2011 - The Resource Alliance - All Rights Reserved 17 Billing and Collection Methods Major objective of collection policy is to convert A/R into cash quickly while minimizing collection expense and bad debt losses Effective A/R management includes reducing invoicing float as much as possible Copyright 2011 - The Resource Alliance - All Rights Reserved 18 Credit & Payment Application Forms of Credit Extension ◦ Open account ◦ Installment credit ◦ Revolving credit ◦ Letter of credit (L/C) Offering ◦ Discounts Evaluate costs versus benefits Cash Application Copyright 2011 - The Resource Alliance - All Rights Reserved 19 Common Terms of Sale Cash before delivery (CBD) Cash on delivery (COD) Cash terms Net terms Discount Monthly Draft/Bill terms billing of lading Seasonal dating Copyright 2011 - The Resource Alliance - All Rights Reserved 20 Financing Accounts Borrow unsecured funds to Receivable support A/R Pledge A/R as collateral for secured loan Securitize receivables Use captive finance subsidiary Third-party B2B financing credit card financing Factoring Copyright 2011 - The Resource Alliance - All Rights Reserved 21 Developments in Credit and Accounts Receivable Electronic Commerce and Electronic Data Interchange (EDI) Electronic Invoice Presentment and Payment (EIPP) Electronic Bill Presentment and Payment (EBPP) Outsourcing Accounts Receivable Copyright 2011 - The Resource Alliance - All Righ...
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This note was uploaded on 02/03/2014 for the course B E 300 taught by Professor Staff during the Spring '08 term at Pennsylvania State University, University Park.

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