Topic 3: Accounts Receivable Flashcards
In what ways does AR management contribute to a firm?
profitability
liquidity
What are the components of credit policy
credit selection
credit standards
credit terms
What does credit selection decide?
credit-worthiness of customer
whether to extend credit
how much credit
What is the criteria to analyse credit worthiness?
character capacity capital collateral conditions
What are credit standards
minimum requirements for extending credit to customer
What does changes in credit standard affect
sales volume
investment in AR
bad debt expense
which affects profit
What does credit terms specify?
repayment terms required of all its credit customers
What are the components of credit terms?
cash discount
cash discount period
credit period
What is collection policy
set of procedures for collecting accounts receivable when they are due
What does the collection policy affect
sales volume
investment in AR
bad debt expense
collection expenditure
What are the types of collection techniques
reminder letters phone calls personal visits collection agencies legal action
What is used to monitor collection effort and how long receivables have been outstanding?
ageing scheudule
What is marginal analysis
analyses the trade-off between costs and benefits
