boken kap 27 del 4 Flashcards
What types of information are commonly used to assess creditworthiness?
Financial statements, credit reports on the customer’s payment history with other firms, information from banks, and the customer’s payment history with the firm.
What is collection in the context of credit management?
The process of obtaining payment of past-due accounts.
What is the formula for the average collection period (ACP)?
ACP = Accounts Receivable / Average Daily Sales
What does the average collection period (ACP) measure?
The average amount of time required to collect a trade or account receivable.
How can a credit manager supplement the information provided by ACP?
By creating an accounts receivable aging schedule, which organizes receivables based on their age.
What is factoring?
The sale of a firm’s trade receivables to a financial institution (a factor).
Who bears the risk of non-payment in factoring?
The factor (financial institution) bears the risk of non-paying customers.
Who does the customer pay in a factoring arrangement?
The customer pays directly to the factor.
What are the three general ways to finance accounts receivable?
Secured debt, a captive finance company, and securitization.
What is secured debt in the context of financing trade credit?
Debt that is backed by collateral, often the accounts receivable themselves.
What is a captive finance company?
A subsidiary created to provide financing to customers of the parent company.
What is securitization?
The process of pooling receivables and selling them as securities to investors.
