Chapter 15

Working Capital and Current Assets Management

Learning Goals
Understand working capital management, net working capital, and the
related trade-off between profitability and risk.

Describe the cash conversion cycle, its funding requirements, and the
key strategies for managing it.

Discuss inventory management: differing views, common techniques.

Explain the credit selection process and the quantitative procedure for
evaluating changes in credit standards.

Review the procedures for quantitatively considering cash discount

changes, other aspects of credit terms, and credit monitoring.

WORKING CAPITAL MANAGEMENT

The importance of efficient working capital management is indisputable

given that a firm’s viability relies on the financial manager’s ability to
effectively manage receivables, inventory, and payables.

The goal of working capital (or short-term financial) management is to

manage each of the firm’s current assets (inventory, accounts
receivable, marketable securities, and cash) and current liabilities
(notes payable, accruals, and accounts payable) to achieve a balance
between profitability and risk that contributes positively to the firm’s
value.

‫الهدف من إدارة رأس المال العامل (أو المالية قصيرة األجل) هو إدارة كل من األصول الحالية‬
‫ والنقد) والمطلوبات‬، $‫ واألوراق المالية القابلة للتسويق‬، ‫ والحسابات المدينة‬، ‫للشركة (المخزون‬
‫ والحسابات المستحقة الدفع) لتحقيق التوازن بين‬، ‫ والمستحقات‬، ‫المتداولة (األوراق المستحقة الدفع‬
‫ التي تساهم بشكل إيجابي في قيمة الشركة‬$‫الربحية والمخاطر‬

Firms are able to reduce financing costs or increase the funds available
for expansion by minimizing the amount of funds tied up in working
capital.

‫الشركات قادرة على خفض تكاليف التمويل أو زيادة األموال المتاحة للتوسع من خالل تقليل كمية‬
‫األموال المقيدة في رأس المال العامل‬

Therefore, it should not be surprising to learn that working capital is

one of the financial manager’s most important and time-consuming
activities. A study of Fortune 1000 firms found that more than one-third
of financial managers’ time is spent managing current assets and about
one-fourth of their time is spent managing current liabilities.
Net Working Capital

• Working capital refers to current assets, which represent the

portion of investment that circulates from one form to another in
the ordinary conduct of business.

• Net working capital (NWC): is the difference between the firm’s

current assets and its current liabilities; can be positive or
negative.

NWC = CA – CL…….. Liquidity indicator

Increase of NWC increase liquidity

The conversion of current assets from inventory to accounts receivable

to cash provides the cash used to pay current liabilities. The cash
outlays for current liabilities are relatively predictable. When an
obligation is incurred, the firm generally knows when the
corresponding payment will be due. What is difficult to predict are the
cash inflows—the conversion of the current assets to more liquid forms.
The more predictable its cash inflows, the less net working capital a firm
needs. Because most firms are unable to match cash inflows to cash
outflows with certainty, they usually need current assets that more than
cover outflows for current liabilities. In general, the greater the margin
by which a firm’s current assets cover its current liabilities, the better
able it will be to pay its bills as they come due.

Trade-off between Profitability and Risk

• Profitability is the relationship between revenues and costs

generated by using the firm’s assets—both current and fixed—in
productive activities.

– A firm can increase its profits by (1) increasing revenues or

(2) decreasing costs.

• Risk (of insolvency) is the probability that a firm will be unable

to pay its bills as they come due.

• A firm that is insolvent is unable to pay its bills as they come due.

Effects of Changing Ratios on Profits and Risk

Changes in Current Assets:

We can demonstrate how changing the level of the firm’s current assets
affects its profitability–risk trade-off by using the ratio of current assets
to total assets.( Current assets / Total assets).

This ratio indicates the percentage of total assets that is current.

Assets Liabilities + Equity

Current assets Current liabilities

Fixed assets Long term debt

Equity capital

When the ratio increases—that is, when current assets increase—

profitability decreases. Why? Because current assets are less profitable
than fixed assets. Fixed assets are more profitable because they add
more value to the product than that provided by current assets. Without
fixed assets, the firm could not produce the product. The risk effect,
however, decreases as the ratio of current assets to total assets
increases. The increase in current assets increases net working capital,
thereby reducing the risk of insolvency. In addition, as you go down the
asset side of the balance sheet, the risk associated with the assets
increases: Investment in cash and marketable securities is less risky
than investment in accounts receivable, inventories, and fixed assets.
Accounts receivable investment is less risky than investment in
inventories and fixed assets. Investment in inventories is less risky than
investment in fixed assets. The nearer an asset is to cash, the less risky it
is. The opposite effects on profit and risk result from a decrease in the
ratio of current assets to total assets.

Changes in Current Liabilities

We also can demonstrate how changing the level of the firm’s current
liabilities affects its profitability–risk trade-off by using the ratio of
current liabilities to total assets. ( Current liabilities / total assets).

This ratio indicates the percentage of total assets that has been financed
with current liabilities. Again, assuming that total assets remain
unchanged, the effects on both profitability and risk of an increase or
decrease. When the ratio increases, profitability increases. Why?
Because the firm uses more of the less-expensive current liabilities
financing and less long-term financing. Current liabilities are less
expensive because only notes payable, which represent about 20
percent of the typical manufacturer’s current liabilities, have a cost. The
other current liabilities are basically debts on which the firm pays no
charge or interest. However, when the ratio of current liabilities to total
assets increases, the risk of insolvency also increases because the
increase in current liabilities in turn decreases net working capital. The
opposite effects on profit and risk result from a decrease in the ratio of
current liabilities to total assets.

Cash Conversion Cycle

Central to working capital management is an understanding of the

firm’s cash conversion cycle.

The cash conversion cycle (CCC): measures the length of time

required for a company to convert cash invested in its operations to
cash received as a result of its operations.
 ‫يقيس طول الوقت الالزم لشركة لتحويل النقدية المستثمرة في عملياتها إلى النقدية المستلمة نتيجة‬
‫لعملياتها‬

Calculating the Cash Conversion Cycle

• A firm’s operating cycle (OC) is the time from the beginning of

the production process to collection of cash from the sale of the
finished product.

‫( دورة تشغيل الشركة‬OC) ‫هي الوقت من بداية عملية اإلنتاج إلى تحصيل النقد من بيع‬
‫المنتج النهائي‬

• It is measured in elapsed time by summing the average age of

inventory (AAI) and the average collection period (ACP).

• ‫( يتم قياسه في الوقت المنقضي من خالل جمع متوسط عمر المخزون‬AAI) $‫ومتوسط‬
‫( فترة التحصيل‬ACP)

OC = AAI + ACP……………………………..Days

-Average age of inventory (AAI) ‫متوسط عمر المخزون‬: The length of time
from the beginning of production process till the sale of products on
credit.

‫المدة الزمنية من بداية عملية اإلنتاج حتى بيع المنتجات باالئتمان‬

Average collection period (ACP) ‫ فترة التحصيل‬$‫متوسط‬: The length of time

from the sale of products till the collection of cash from account
receivables.

‫المدة الزمنية من بيع المنتجات حتى تحصيل النقدية من حسابات الذمم المدينه‬

operating cycle (OC) preferred to be short, why? To reduce the amount

of money invested in the firms operations ( reduce the money tied up in
operations) , to avoid insolvency.

However, the process of producing and selling a product also includes

the purchase of production inputs (raw materials) on account, which
results in accounts payable.
The time it takes to pay the accounts payable, measured in days, is the
average payment period (APP).

The operating cycle less the average payment period yields the cash
conversion cycle. The formula for the cash conversion cycle is:

CCC = OC – APP

Substituting for OC, we can see that the cash conversion cycle has three
main components, as shown in the following equation: (1) average age
of the inventory, (2) average collection period, and (3) average payment
period.

CCC = AAI + ACP – APP

Note: the firm can reduce the CCC by shortening AAI and ACP and
lengthening ( increasing APP).

The goal is to minimize the length of the cash conversion cycle, which
minimizes negotiated liabilities. This goal can be realized through use of
the following strategies:

1. Turn over inventory as quickly as possible without

stockouts ‫ نفاد المخزون‬that result in lost sales.

2. Collect accounts receivable as quickly as possible without

losing sales from high-pressure collection techniques.

3. Pay accounts payable as slowly as possible without

damaging the firm’s credit rating.
Example:

In its 2012 annual report, Whirlpool Corporation reported that it had

revenues of $18.1 billion, cost of goods sold of $15.2 billion, IBM had an
average age of inventory (AAI) of 58 days, an average collection period
(ACP) of 40 days, and an average payment period (APP) of 89 days
(IBM’s purchases were $15.2.) presents IBM’s cash conversion cycle as a
time line. The resources IBM had invested in this cash conversion cycle
(assuming a 365-day year) were:

CCC= AAI + ACP - APP

CCC = 58 + 40 – 89 = 9 days
The resources Whirlpool had
invested in this cash conversion
cycle (assuming a 365-day year)
were:

Inventory = $15.2 billion x

(58/365) = $2.4
+ Accounts receivable= 18.1 billion x
(40/365) = 2.0
- Accounts payable = 15.2 billion x
(89/365) = 3.7
= Resources invested
= $0.7

With roughly $700 million

committed to working capital,
Whirlpool was surely motivated
to make improvements.
Inventory Management

The first component of the cash conversion cycle is the average age of
inventory. The objective for managing inventory is to turn over
inventory as quickly as possible without losing sales from
stockouts. The financial manager tends to act as an advisor or
“watchdog” in matters concerning inventory. He or she does not have
direct control over inventory but does provide input to the inventory
management process.

Differing viewpoints about appropriate inventory levels commonly exist

among a firm’s finance, marketing, manufacturing, and purchasing
managers.

– The financial manager’s general disposition toward

inventory levels is to keep them low, to ensure that the
firm’s money is not being unwisely invested in excess
resources.

– The marketing manager, on the other hand, would like to

have large inventories of the firm’s finished products.

– The purchasing manager is concerned solely with the raw

materials inventories.
COMMON TECHNIQUES FOR MANAGING INVENTORY

Numerous techniques are available for effectively managing the firm’s

inventory. Here we briefly consider four commonly used techniques.

1) The Economic Order Quantity (EOQ) Model ‫حجم الطلبيه االمثل‬

‫نموذج كمية الطلب االقتصادي‬

is an inventory management technique for determining an item’s

optimal order size, which is the size that minimizes the total of its order
costs and carrying costs.

‫ وهو الحجم الذي يقلل من إجمالي‬، ‫عبارة عن تقنية إلدارة المخزون لتحديد الحجم األمثل للطلب‬
‫ التخزين‬$‫تكاليف الطلبات وتكاليف‬

EOQ assumes that the relevant costs of inventory can be divided into
order costs and carrying costs.

– Order costs are the fixed clerical costs of placing and

receiving an inventory order.

– Carrying costs are the variable costs per unit of holding an

item in inventory for a specific period of time.

The EOQ model analyzes the tradeoff between order costs and carrying
costs to determine the order quantity that minimizes the total inventory
cost.

A formula can be developed for determining the firm’s EOQ for a given
inventory item,

S = usage in units per period

O = order cost per order

C = carrying cost per unit per period

Q = order quantity in units

Example: MAX Company, a producer of dinnerware, has an A group

inventory item that is vital to the production process. This item costs
$1,500, and MAX uses 1,100 units of the item per year. MAX wants to
determine its optimal order strategy for the item. To calculate the EOQ,
we need the following inputs:

– Order cost per order = $150

– Carrying cost per unit per year = $200

– Thus,

The reorder point ‫ نقطة إعادة الطلب‬:is the point at which to reorder
inventory, expressed as days of lead time ´ daily usage.

days of lead time ‫ أيام المهلة‬: the number of days of lead time the firm
needs to place and receive an order .

The reorder point for MAX depends on the number of days MAX
operates per year.

– Assuming that MAX operates 250 days per year and uses
1,100 units of this item, its daily usage is 4.4 units (1,100 ÷
250).
 – its lead time is 2 days

Reorder point = 2 days ´ ( 1100 unit / 250 day) = 2 ´ 4.4 = 8.8 = 9 units

– Because lead times and usage rates are not precise, most firms
hold safety stock—extra inventory that is held to prevent stock
outs of important items.

– and MAX wants to maintain a safety stock of 4 units.

Reorder point = days of lead time ´ daily usage + safety stock

the reorder point for this item is 12.8 units [(2 ´ 4.4) + 4].

- Assume the firm wants to keep 4 days of usage as safety stock.

Safety stock 4 * 4.4 = 17.6 unit
Re = 2 * 4.4 + 17.6 = 8.8 + 17.6 = 26.4 units

– However, orders are made only in whole units, so the order

is placed when the inventory falls to 13 units.

If the wants to keep 4 units as safety stock, calculate the reorder point?

2) A just-in-time (JIT) system ‫( نظام في الوقت المناسب‬JIT) : is an

inventory management technique that minimizes inventory investment
by having materials arrive at exactly the time they are needed for
production.

: ‫ المخزون من خالل وصول المواد في الوقت المطلوب‬$‫هي تقنية إلدارة المخزون تقلل من استثمار‬
‫إلنتاجها بالضبط‬

– Because its objective is to minimize inventory investment, a

JIT system uses no (or very little) safety stock.

- ‫ فإن نظام‬، ‫ نظرً ا ألن هدفه هو تقليل االستثمار في المخزون‬JIT ‫ال يستخدم أي‬
ً ‫مخزون أمان (أو قليل‬
)‫جدا‬

– Extensive coordination among the firm’s employees, its

suppliers, and shipping companies must exist to ensure that
material inputs arrive on time.
 - ‫ وشركات الشحن لضمان‬$‫يجب وجود تنسيق مكثف بين موظفي الشركة ومورديها‬
‫وصول مدخالت المواد في الوقت المحدد‬

– Failure of materials to arrive on time results in a shutdown

of the production line until the materials arrive.

- $‫يؤدي عدم وصول المواد في الوقت المحدد إلى إغالق خط اإلنتاج حتى وصول‬
‫المواد‬

Likewise, a JIT system requires high-quality parts from suppliers.

Manufacturing efficiency.

Accounts Receivable Management

The second component of the cash conversion cycle is the average

collection period.

The objective for managing accounts receivable is to collect accounts

receivable as quickly as possible without losing sales from high-
pressure collection techniques.

‫الهدف من إدارة الحسابات المدينة هو جمع الحسابات المستحقة القبض بأسرع ما يمكن دون خسارة‬
‫المبيعات من تقنيات التحصيل ذات الضغط العالي‬

Accomplishing this goal encompasses three topics:

(1) credit selection and standards,

(2) credit terms,

(3) credit monitoring.

Credit Selection and Standards

Credit selection involves application of techniques for determining

which customers should receive credit. This process involves evaluating
the customer’s creditworthiness and comparing it to the firm’s credit
standards.
Credit standards ‫ان‬$$‫ايير االئتم‬$$‫ مع‬:The firm’s minimum requirements for
extending credit to a customer.

‫الحد األدنى من متطلبات الشركة لتقديم االئتمان للعمالء‬.

1)The five C’s of credit are as follows:

1. Character ‫ الشخصية‬: The applicant’s record of meeting past

obligations.

2. Capacity ‫القدرة‬: The applicant’s ability to repay the requested

credit.

3. Capital ‫ رأس المال‬:The applicant’s debt relative to equity.

4. Collateral ‫ الضمانات‬: The amount of assets the applicant has

available for use in securing the credit.

5. Conditions ‫ العامه‬$‫ الظروف‬:Current general and industry-

specific economic conditions, and any unique conditions
surrounding a specific transaction.

2)Credit scoring: statistical method is a credit selection method

commonly used with high-volume/small-dollar credit requests; relies
on a credit score determined by applying statistically derived weights to
a credit applicant’s scores on key financial and credit characteristics.

The purpose of credit scoring is to make a relatively informed credit

decision quickly and inexpensively. ( FICO system)

‫الغرض من هذه الطريقة هو اتخاذ قرار ائتماني مستنير نسبيًا بسرعة وبتكلفة منخفضة‬

Changing Credit Standards

The firm sometimes will contemplate changing its credit standards in

an effort to improve its returns and create greater value for its owners.
To demonstrate, consider the following changes and effects on profits
expected to result from the relaxation (‫) تخفيف‬of credit standards.

‫ أن تنتج عن تخفيف معايير االئتمان‬$‫التغييرات واآلثار على األرباح المتوقع‬.

If credit standards were tightened (‫)تشديد‬, the opposite effects would be
expected.

‫ فإن اآلثار المعاكسة ستكون متوقعة‬، ‫ االئتمان‬$‫ معايير‬$‫إذا تم تشديد‬

COMPARE BENEFITS with COSTS

Example: Dodd Tool is currently selling a product for $10 per unit. Sales
(all on credit) for last year were 60,000 units. The variable cost per unit
is $6. The firm’s total fixed costs are $120,000.The firm is currently
contemplating a relaxation of credit standards that is expected to result
in the following:

– a 5% increase in unit sales to 63,000 units;

– an increase in the average collection period from 30 days

(the current level) to 45 days;

– an increase in bad-debt expenses from 1% of sales (the

current level) to 2%.

The firm’s required return on equal-risk investments, which is the

opportunity cost of tying up funds in accounts receivable, is 15%.

Should the firm relax its credit standards or not?

Benefits

1) The total additional profit contribution:

The profit contribution per unit ‫مساهمة الربح لكل وحدة‬:

profit contribution per unit = Sale price per unit – variable cost per unit

= $10 - $ 6 = $4

total additional profit contribution = profit contribution per unit ´ sales

increase

= $4 per unit ´ 3,000 units = $ 12,000

COSTS:

1)Cost of the Marginal Investment in Accounts Receivable:

‫ في الذمم المدينه‬$‫التكلفه الحديه لالستثمار‬

To determine the cost of the marginal investment in accounts

receivable, the firm must find the difference between the cost of
carrying receivables under the two credit standards. Because its
concern is only with the out-of-pocket costs, the relevant cost is the
variable cost. The average investment in accounts receivable can be
calculated by using the following formula:

Total variable cost of annual sales ‫إجمالي التكلفة المتغيرة للمبيعات السنوية‬

– Under present plan: ($6 ´ 60,000 units) = $360,000

– Under proposed (expected) plan: ($6 ´ 63,000 units) =

$378,000
The turnover of accounts receivable ‫معدل دوران الذمم المدينه‬

is the number of times each year that the firm’s accounts receivable are
actually turned into cash. It is found by dividing the average collection
period into 365 (the number of days assumed in a year).

Turnover of accounts receivable

– Under present plan: (365/30) = 12.2

– Under proposed plan: (365/45) = 8.1

By substituting the cost and turnover data just calculated into the
average investment in accounts receivable equation for each case, we
get the following:

Average investments in accounts receivable:

– Under present plan: ($360,000/12.2) = $29,508

– Under proposed plan: ($378,000/8.1) = $46,667

– Cost of marginal investment in accounts receivable

Average investment under proposed plan $46,667

– Average investment under present plan 29,508

= Marginal investment in accounts receivable $17,159

– ´ Required return on investment 0.15

– Cost of marginal investment in A/R $ 2,574

– The resulting value of $2,574 is considered a cost because it

represents the maximum amount that could have been earned on
the $17,159 had it been placed in the best equal-risk investment
alternative available at the firm’s required return on investment
of 15%.

2)Cost of marginal bad debts

 – Under proposed plan:  (0.02 ´ $10/unit ´ 63,000 units) =
$12,600

– Under present plan: (0.01 ´ $10/unit ´ 60,000 units) =

6,000

– Cost of marginal bad debts $ 6,600

– The net addition to total profits resulting from relaxing credit

standards would be $2,826 per year. Therefore, Dodd Tool should
relax its credit standards.

BENEFITS = 12,000

COSTS =$ 2574 + $6600 =$ 9174 , relax credit standards.

CREDIT TERMS ‫شروط االئتمان‬

Credit terms are the terms of sale for customers who have been
extended credit by the firm.

Terms of net 30 mean the customer has 30 days from the beginning of
the credit period to pay the full invoice amount.

Some firms offer cash discounts percentage.

A cash discount is a percentage deduction from the purchase price;

available to the credit customer who pays its account within a specified
time.

– For example, terms of 2/10 net 30 mean the customer can

take a 2 percent discount from the invoice amount if the
payment is made within 10 days of the beginning of the
credit period or can pay the full amount of the invoice
within 30 days.

‫ من سعر الشراء للدفع في غضون‬$‫تقدم بعض الشركات خصومات نقدية نسبة مئوية من الخصومات‬
‫ أنه يمكن للعميل الحصول على‬30 ‫ الصافية‬2/10 $‫ تعني شروط‬، ‫ على سبيل المثال‬.‫وقت محدد‬
 ‫ أيام من بداية فترة االئتمان أو‬10 ‫ في المائة من مبلغ الفاتورة إذا تم الدفع خالل‬2 ‫خصم بنسبة‬
‫ يومًا‬30 ‫يمكنه دفع المبلغ الكامل للفاتورة في غضون‬

A firm’s business strongly influences its regular credit terms. For

example, a firm selling perishable items will have very short credit
terms because its items have little long-term collateral value; a firm in a
seasonal business may tailor its terms to fit the industry cycles. A firm
wants its regular credit terms to conform to its industry’s standards. If
its terms are more restrictive than its competitors’, it will lose business;
if its terms are less restrictive than its competitors’, it will attract poor-
quality customers that probably could not pay under the standard
industry terms. The bottom line is that a firm should compete on the
basis of quality and price of its product and service offerings, not its
credit terms. Accordingly, the firm’s regular credit terms should match
the industry standards, but individual customer terms should reflect the
riskiness of the customer.

Cash Discount Including a cash discount in the credit terms is a popular

way to speed up collections without putting pressure on
customers. The cash discount provides an incentive for customers
to pay sooner. By speeding collections,

- the discount decreases the firm’s investment in accounts receivable,

---- decreases the per-unit profit.

-Additionally, initiating a cash discount should reduce bad debts

because customers will pay sooner,

-and it should increase sales volume because customers who take the
discount pay a lower price for the product.

- Accordingly, firms that consider offering a cash discount must perform

a benefit–cost analysis to determine whether extending a cash discount
is profitable.

Compare benefits with costs.

Example: MAX Company has annual sales of $10 million and an average
collection period of 40 days (turnover ).

MAX is considering initiating a cash discount by changing its credit

terms from net 30 to 2/10 net 30. The firm expects this change resulting
in an average collection period of 25 days (turnover ).

MAX has a raw material with current annual usage of 1,100 units. Each
finished product produced requires one unit of this raw material at a
variable cost of $1,500 per unit, incurs another $800 of variable cost in
the production process (variable cost per unit =2300), and sells for
$3,000 on terms of net 30. Variable costs therefore total $2,300 ($1,500
$800).

( current usage = 1100 unit

Variable cost per unit = $2300

Sale price per unit = $3000

MAX estimates that 80% of its customers will take the 2% discount and
that offering the discount will increase sales of the finished product by
50 units (from 1,100 to 1,150 units) per year but will not alter its bad
debt percentage.

Expected sale = 1150 unit

MAX’s opportunity cost of funds invested in accounts receivable is 14%.

Should MAX offer the proposed cash discount? An analysis similar to
that demonstrated earlier for the credit standard decision.

Compare benefits with costs.

Benefits:

1-sales volume increase

-The total additional profit contribution:

Cash Discount Period ‫فترة الخصم النقدي‬

cash discount period: The number of days after the beginning of the
credit period during which the cash discount is available.

‫ خاللها الخصم النقدي‬$‫عدد األيام بعد بداية فترة االئتمان التي يتوفر‬

The net effect of changes in this period is difficult to analyze because of

the nature of the forces involved.

For example, if a firm were to increase its cash discount period by 10

days (for example, changing its credit terms from 2/10 net 30 to 2/20
net 30), the following changes would be expected to occur:

(1) Sales would increase, positively affecting profit.

(2) Bad-debt expenses would decrease, positively affecting profit.

(3) The profit per unit would decrease as a result of more people taking
the discount, negatively affecting profit.

This investment will decrease because of non–discount takers now

paying earlier. However, the investment in accounts receivable will
increase for two reasons: (1) Discount takers will still get the discount
but will pay later, and (2) new customers attracted by the new policy
will result in new accounts receivable.

Credit Period ‫فترة االئتمان‬

Credit period: is the number of days after the beginning of the credit
period until full payment of the account is due.

Changes in also affect a firm’s profitability. For example, increasing a

firm’s credit period from net 30 days to net 45 days should increase
sales, positively affecting profit. But both the investment in accounts
receivable and bad-debt expenses would also increase, negatively
affecting profit. The increased investment in accounts receivable would
result from both more sales and generally slower pay, on average, as a
result of the longer credit period.

CREDIT MONITORING ‫مراقبة االئتمان‬

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.

‫هي مراجعة مستمرة لحسابات الشركة المستحقة القبض لتحديد ما إذا كان العمالء يدفعون وف ًقا‬
‫لشروط االئتمان المعلنة‬

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.