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
What is export credit risk?
The risk of failure in collecting payments due from foreign customers
What is foreign exchange risk
The risk that the value of the currency will change between the date of contract and the date of settlement
What is described below?
Goods or services are exchanged for other goods or services instead of for cash.
Countertrading
What is described below?
This protects a business against the risk of non-payment by a foreign customer.
Export credit insurance
