AR and AP Management Flashcards
Questions for granting credit?
Should credit be granted to all customers?
What is the true cost to the business of customer credit?
How are settlement discounts influenced?
Largely by accepted practice within the industry
What must company ensure with the disocunt’s allowed expense?
It does not exceed the benefit of reduced finance costs
How must company make customers aware of credit periods and settlement discounts?
On orders
On invoices
On statements
Why must settlement discount policy be enforced?
Some customers will attempt to take the settlement discount whether they pay on time
Once the credit limit is reached?
It cannot be exceeded without the authorisation of senior management.
How should credit customers be informed in writing for credit terms?
The normal credit period
Any discount for prompt payment
Any interest that will be charged on late payment
What might credit terms increase?
Bad debts
Higher administration costs
Bank overdraft charges
If profits arising from additional credit period are less than costs incurred?
The credit period should be reviewed
What is essential for an organisation to do?
Maintain accurate records detailing all transactions with customers and the amounts owing
What should an aged receivables list contain?
Detailing the length of time outstanding amounts have been owed
What should a credit utilisation report show?
The proportion of each customer’s credit limit that is currently being utilised
What does credit utilisation report identify?
Credit limits that may need to be reviewed and revised (upwards or downwards) as well as breaches of credit limit
Ways to assess creditworthiness?
A bank reference
A trade reference from another company who has dealings with the (potential) customer
Latest available financial statements can be quickly and easily obtained
First step in efficient cash collection?
To invoice customers quickly and accurately
