Working capital
Current assets
Credit period
The period during which a customer should repay the credit
Default of payment
when customers pay too late or don’t pay at all
Discount period
a period when customers get a discount for paying early
The 4 sources used for creditworthiness assessment
1: Personal visits to the customer
2: Sales representatives
3: Financial statements of the customer
4: Credit reporting agencies
Factoring
When a company transfers its approved invoices to a factoring company
Days sales outstanding formula
Average sum of outstanding invoices / sales on account x 365 days
Transaction motive
Sufficient cash and cash equivalents are kept to allow purchases that guarantee the continuity of the production process (payment of salaries, purchasing raw materials, tax payment etc)
Precaution motive
Additional cash and cash equivalents are kept, due to uncertainty concerning the size and time of cash payments and receipts
Speculation motive
additional cash and cash equivalents are kept, to benefit from price changes of production factors