tailieunhanh - Brealey−Meyers: Principles of Corporate Finance, 7th Edition - Chapter 32

CHAPTER THIRTY-TWO CREDIT MANAGEMENT When companies sell their products, they sometimes demand cash on or before delivery, but in most cases they allow some delay in payment. If you turn back to the balance sheet in Table , you can see that for the average manufacturing company, accounts receivable constitute | IX. Financial Planning and I 32. Credit Management Brealey-Meyers Principles of Corporate Finance Seventh Edition The McGraw-Hill Companies 2003 Short-Term Management CHAPTER THIRTY-TWO 908 IX. Financial Planning and I 32. Credit Management Short-Term Management Brealey-Meyers Principles of Corporate Finance Seventh Edition The McGraw-Hill Companies 2003 WHEN COMPANIES SELL their products they sometimes demand cash on or before delivery but in most cases they allow some delay in payment. If you turn back to the balance sheet in Table you can see that for the average manufacturing company accounts receivable constitute about one-third of its current assets. Receivables include both trade credit and consumer credit. The former is by far the larger and will therefore be the main focus of this chapter. Companies that do not pay for their purchases immediately are effectively borrowing money from their suppliers. Such debts show up as accounts payable in the purchasing companies balance sheets. Table shows that payables are the most important source of short-term finance much larger than short-term loans from banks and other institutions. Management of trade credit requires answers to five sets of questions 1. On what terms do you propose to sell your goods or services How long are you going to give customers to pay their bills Are you prepared to offer a cash discount for prompt payment 2. What evidence do you need of indebtedness Do you just ask the buyer to sign a receipt or do you insist on some more formal commitment 3. Which customers are likely to pay their bills To find out do you consult a credit agency or ask for a bank reference Or do you analyze the customer s financial statements 4. How much credit are you prepared to extend to each customer Do you play it safe by turning down any doubtful prospects Or do you accept the risk of a few bad debts as part of the cost of building up a large regular clientele 5. How do you collect the money when it .