Credit standards, Finance Basics

Credit Standards

A firm may follow a stringent or a lenient credit policy. The firm subsequent of a lenient credit policy tends to sell on credit to customers on extremely liberal terms and credit is granted for a longer time. Firms following a stringent credit policy on another hand sell on credit on a highly choosy basis simply to those customers who such have proven credit worthiness and who that are financially strong.

However a lenient credit policy will result in increased sales and increased contribution margin. Therefore, these will result also in increased costs like:

1.Increased bad debt losses
2.Opportunity cost of tied up capital in obtainable
3.Increased cost of carrying out credit study
4.Increased collection cost
5.Increased discount costs to encourage early payments

Posted Date: 1/31/2013 8:15:39 AM | Location : United States







Related Discussions:- Credit standards, Assignment Help, Ask Question on Credit standards, Get Answer, Expert's Help, Credit standards Discussions

Write discussion on Credit standards
Your posts are moderated
Related Questions
Determinants of Required Rate of Return 1.Risk free rate - This is the interest rate such would exist on default free securities like Treasury bills and bonds. Risk free

What is Bond Rate It is interest rate received on the face value or the par value of the bond. If a company or government issues a 10-year bond with 100$ as face value and 1

I am facing some problems in my assignment of Performance Review in finance. Can anybody suggest me the proper explanation for it?

Suppose the Alctz Display Flowers pte  Ltd uses the periodic inventory system and  average cost to explain inventory cost. (a)  Determine the ending inventory cost as at Decembe

Methods or Techniques of Financial Forecasting 1. Use of Cash Budgets A cash budget is a financial statement showing as: a) Sources of capital and revenue cash inflows

how can I get?

Explain about the New Issue Market OR Primary Market New issue market is the segment in which new issues are made. In new issue market, new issues may be made in 3 ways name

One of the projects the US loan would fund is to build earthquake-resistant buildings. The project will begin in March 2013, last for two years and is expected to have the followin

Uses and Application of Ratios Ratios are required in the following ways via managers in different firms. 1. Evaluating the efficiency of assets employment to generate sale

Illustrate the role of credit unions in depository institutions. Credit unions: Credit unions are non-profit institutions equally organised and owned through their member