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14.4   Explain the credit selection process and the quantitative procedure

Question : 14.4   Explain the credit selection process and the quantitative procedure : 1415270

 

14.4   Explain the credit selection process and the quantitative procedure for evaluating changes in credit standards.

1) One of the components of a cash conversion cycle is the average collection period.

2) A firm's credit selection is the process of determining the minimum requirements for extending credit to a customer.

3) Credit analysts usually analyze an applicant's creditworthiness by using the dimensions of credit such as character, capacity, capital, collateral, and conditions.

4) Credit selection involves application of techniques for determining which customers should receive credit.

5) A firm's credit standards are the minimum requirements for extending credit to a customer.

6) By increasing collection expenditures, a firm can decrease bad debt losses up to a point, beyond which bad debts cannot be economically reduced.

7) The average investment of a firm in accounts receivable is equal to the firm's total variable cost of annual sales divided by its average collection period.

8) The objective for managing accounts receivable is to avoid credit sales as much as possible.

9) In analyzing an applicant's creditworthiness, a credit manager typically gives primary attention to two of the five C's of credit—collateral and condition—since they represent the most basic requirements for extending credit to an applicant.

10) One of the key inputs to the final credit decision is a credit analyst's subjective judgment of a firm's creditworthiness since it can provide a better feel of a firm's operation than any quantitative figures.

 

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