文档介绍：chapter 19 Working capital management
Chapter 19
Working capital management
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Objectives
Measure the implicit interest rate on credit sales3>.
Decide whether it makes sense to grant credit to customers.
Cite the costs and benefits of holding inventories and cash balances.
Describe the methods firms use to manage cash efficiently.
Compare alternatives for investing excess funds over short horizons.
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Content
Accounts receivable and credit policy
Inventory management
Cash management
Investing idle cash: the money market
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Credit management involves the following five steps
Establish the terms of sale on which you propose to sell your goods.
Decide what evidence you require that the customer owes you money.
Determine which customers are likely to pay their bills. This is called credit analysis.
Decide on credit policy.
Collect the money when it es due. This is called collection policy.
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Terms of sale
Terms of sale: credit, discount, and payment terms offered on a sale.
For example, a manufacturer may require payment within 30 days but offer a 5% discount to customers who pay within 10 days. These terms would be referred to as 5/10, net 30:
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A firm that buys on credit is in effect borrowing from its supplier. It saves cash today but will have to pay later. This is an implicit loan from the supplier.
If the firm pays within 10 days, it gets a 3% discount and pays only $97. If it waits the full 30 days, it pays $100. Therefore, the implicit interest charged to extend the trade credit is percent per 20 days. There are 365/20 = twenty-day periods in a year, so the effective annual rate of interest on the loan is () –1 = .79>43, or %.
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Credit agreements
Most sales are made on open account. In this case the only evidence that the customer owes you money is the entry in your ledger and a receipt signed by the customer.
Sometimes