财务管理PPTch10accountreceivableandinventorymanagement.pptVIP

Chapter 11 Accounts Receivable and Inventory Management Accounts Receivable and Inventory Management Credit and Collection Policies Analyzing the Credit Applicant Inventory Management and Control Credit and Collection Policies of the Firm Credit Standards The financial manager should continually lower the firm’s credit standards as long as profitability from the change exceeds the extra costs generated by the additional receivables. Credit Standards A larger credit department Additional clerical work Servicing additional accounts Bad-debt losses Opportunity costs Example of Relaxing Credit Standards Basket Wonders is not operating at full capacity and wants to determine if a relaxation of their credit standards will enhance profitability. The firm is currently producing a single product with variable costs of $20 and selling price of $25. Relaxing credit standards is not expected to affect current customer payment habits. Example of Relaxing Credit Standards Additional annual credit sales of $120,000 and an average collection period for new accounts of 3 months is expected. The before-tax opportunity cost for each dollar of funds “tied-up” in additional receivables is 20%. Ignoring any additional bad-debt losses that may arise, should Basket Wonders relax their credit standards? Example of Relaxing Credit Standards Profitability of ($5 contribution) x (4,800 units) = additional sales $24,000 Additional ($120,000 sales) / (4 Turns) = receivables $30,000 Investment in ($20/$25) x ($30,000) = add. receivables $24,000 Req. pre-tax return (20% opp. cost) x $24,000 = on add. investment $4,800 Yes! Profits Required pre-tax return Credit and Collection Policies of the Firm Credit Terms Credit Period -- The total length of time over which credit is extended to a customer to pay a bill. For example, “net 30” requires full payment to the firm within 30 days from the invoice date. Example of Relaxing the Credit Period Basket Wonders is considerin