Chapter 15 - Receivables and payables Flashcards
What is the formula for the financing cost of receivables?
πππππππππ ππππ ππ πππππππππππ = πππππππ ππππππππππ x ππππππππ πππe
How do you calculate the average recieveable?
ππ£πππππ ππππππ£ππππ = (ππππππ£πππππ πππ¦π ) Γ· 365 π₯ ππππππ‘ π ππππ
What is the formula for Annual cost of a discount.
(1+(Discount/Amount to pay))^(number of periods)-1
Please just look at the formula in notes in chapter 15
What is a debt factoring company?
A company that specialises in debt collection and administration.
The optimum level of trade credit extended represents a balance between two factors: What are they?
- profit improvement from sales obtained by allowing credit
- the cost of credit allowed.
What five things influence a companyβs credit policy?
- Demand for products
- Competitors terms
- Risk of irrecoverable debts
- Financing costs
- Costs of credit control
What are the four key aspects of a credit policy?
1 - Credit worthiness
2 - Credit limits
3 - Invoice promptly and collect overdue debts
4 - Monitor the credit system
When should a firm asses the creditworthiness of new customers?
Immediately
When should a firm asses the creditworthiness of existing customers?
Periodically
What are the stages of debt collection
- Reminder letter
- Telephone calls
- Withholding supplies
- Debt collectors
- Legal action
What is the key advantage of invoice discounting?
It is a confidential service
Explain invoice discounting
- The company borrows an amount (eg 80%) of an invoice from an invoice discounter.
- They use the invoice as a security
- When customer pays them back the company pays the invoice discounter the amount owed plus ineterst.
What is factoring?
Outsourcing credit control to a third party
What are the three services offered by a factor?
- Debt collection and admin
- Financing
- Credit insurance
Who are factors most valuable to?
- Smaller firms
- Fast growing firms
