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    CH 28

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    rameshmba
    The document discusses receivables management and credit policies. It covers topics such as the nature and goals of credit policies, determining optimal credit policies, variables to consider in credit policies, evaluating individual customer accounts, monitoring receivables, and key concepts.

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    CH 28

    Uploaded by

    rameshmba
    1K views11 pages
    The document discusses receivables management and credit policies. It covers topics such as the nature and goals of credit policies, determining optimal credit policies, variables to consider in credit policies, evaluating individual customer accounts, monitoring receivables, and key concepts.

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    Ch 28

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    The document discusses receivables management and credit policies. It covers topics such as the nature and goals of credit policies, determining optimal credit policies, variables to consider in credit policies, evaluating individual customer accounts, monitoring receivables, and key concepts.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    1K views11 pages

    CH 28

    Uploaded by

    rameshmba
    The document discusses receivables management and credit policies. It covers topics such as the nature and goals of credit policies, determining optimal credit policies, variables to consider in credit policies, evaluating individual customer accounts, monitoring receivables, and key concepts.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 11

    Chapter - 28

    Receivables Management
    and Factoring
    Topics
     Nature and Goals of Credit Policy
     Optimum Credit Policy
     Credit Policy Variables
     Credit Evaluation of Individual Accounts
     Monitoring Receivable
     Summary of Key Concepts

    Financial Management, Ninth Edition © I M Pandey 2


    Vikas Publishing House Pvt. Ltd.
    Nature of Credit Policy
     Investment in receivable
     volume of credit sales
     collection period

     Credit policy
     credit standards
     credit terms
     collection efforts

    Financial Management, Ninth Edition © I M Pandey 3


    Vikas Publishing House Pvt. Ltd.
    Goals of Credit Policy
     Marketing tool
     Maximisation of Costs & Benefits

    sales Vs. Profitability

    incremental profit
     production and
    Liquidity
    selling costs
    Tight Credit Loose
     administration costs policy

     bad-debt losses

    Financial Management, Ninth Edition © I M Pandey 4


    Vikas Publishing House Pvt. Ltd.
    Optimum Credit Policy
     Estimation of incremental
    profit
    Costs & Return (%)
     Estimation of incremental
    investment in receivable Marginal cost of capital
     Estimation of incremental
    rate of return (IRR)
     Comparison of incre- Marginal rate of return
    mental rate of return with
    Tight Credit Loose
    required rate of return policy
    (RRR)
     Optimum credit policy:
    IRR = RRR

    Financial Management, Ninth Edition © I M Pandey 5


    Vikas Publishing House Pvt. Ltd.
    Credit Policy Variables
     Credit standards
     Credit analysis
     collection period
     default rate
     character
     capacity
     condition
     capital
     collateral

    Financial Management, Ninth Edition © I M Pandey 6


    Vikas Publishing House Pvt. Ltd.
    Credit Policy Variables
     customer categories
     good accounts
     bad accounts
     marginal accounts
     numerical credit scoring
     ad hoc approach
     simple discriminant approach
     multiple discriminant approach

    Financial Management, Ninth Edition © I M Pandey 7


    Vikas Publishing House Pvt. Ltd.
    Credit Policy Variables
    Credit-Granting Decision
    CREDIT GRANTING
    DECISION

    NO CREDIT GRANT CREDIT

    PAYMENT PAYMENT
    RECEIVED NOT RECEIVED

    BENEFIT COST
    PV OF FUTURE PV OF LOST
    NET CASH INVESTMENT
    FLOWS
    NO PAYOFF

    NET PAYOFF
    PV OF
    (BENEFIT - COST)

    Credit-granting Decision

    Financial Management, Ninth Edition © I M Pandey 8


    Vikas Publishing House Pvt. Ltd.
    Credit Policy Variables
     Credit terms
     credit period
     cash discount

     Collection policy and procedures


     regularity of collections
     clarity of collection procedures
     responsibility for collection and follow-up
     case-by-case approach
     cash discount for prompt payment

    Financial Management, Ninth Edition © I M Pandey 9


    Vikas Publishing House Pvt. Ltd.
    Credit Evaluation of Customers
     Credit information
     financial statements
     bank references
     trade references

     Credit investigation and analysis


     analysis of credit file
     financial analysis
     analysis of business and management

     Credit limit
     Collection efforts

    Financial Management, Ninth Edition © I M Pandey 10


    Vikas Publishing House Pvt. Ltd.
    Monitoring Receivable
     Collection period
     Aging schedule
     Collection experience matrix

    Financial Management, Ninth Edition © I M Pandey 11


    Vikas Publishing House Pvt. Ltd.

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