Management and Organizational Studies 2310A/B Chapter Notes - Chapter 20: Credit Analysis, Cash Flow, Effective Interest Rate

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Nicholas Kahnert

Document Summary

When credit is granted an ar is created. These receivables include credit to other firms, called trade credit, and credit granted to consumers, called consumer credit. About 10% of all assets of canadian industrial firms are in the form of ar. Figure is much higher for retail firms. Trade credit is a very important source of financing for corporations. Receivables and receivables management are key aspects of a firms short term financial policy. If a firm decides to grant credit to its customers, it must establish procedures for extending credit and collecting. Firm must deal with following components of credit policy: terms of sale = establish how the firm proposes to sell its goods and services. Basic distinction is whether firm requires cash or extends credit. Apparent that one of the factors influencing the receivables period is float. One way to reduce the receivables period is to speed up cheque mailing, processing, and clearing.