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    Summary Chapter 20

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    Fidelia Agatha
    This document summarizes concepts related to credit and inventory management. It discusses granting credit to increase sales while incurring costs of nonpayment. It also examines components of credit policies, total costs of granting credit, and analyzing customer creditworthiness. The document also summarizes inventory management, types of inventory, inventory costs including carrying and shortage costs, and approaches to inventory classification and optimization.

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    Download as PDF, TXT or read online from Scribd

    Summary Chapter 20

    Uploaded by

    Fidelia Agatha
    58 views4 pages
    This document summarizes concepts related to credit and inventory management. It discusses granting credit to increase sales while incurring costs of nonpayment. It also examines components of credit policies, total costs of granting credit, and analyzing customer creditworthiness. The document also summarizes inventory management, types of inventory, inventory costs including carrying and shortage costs, and approaches to inventory classification and optimization.

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    summary manajemen keuangan chapter 20

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    SUMMARY CHAPTER 20

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    This document summarizes concepts related to credit and inventory management. It discusses granting credit to increase sales while incurring costs of nonpayment. It also examines components of credit policies, total costs of granting credit, and analyzing customer creditworthiness. The document also summarizes inventory management, types of inventory, inventory costs including carrying and shortage costs, and approaches to inventory classification and optimization.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    58 views4 pages

    Summary Chapter 20

    Uploaded by

    Fidelia Agatha
    This document summarizes concepts related to credit and inventory management. It discusses granting credit to increase sales while incurring costs of nonpayment. It also examines components of credit policies, total costs of granting credit, and analyzing customer creditworthiness. The document also summarizes inventory management, types of inventory, inventory costs including carrying and shortage costs, and approaches to inventory classification and optimization.

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    SUMMARY CHAPTER 20

    CREDIT AND INVENTORY MANAGEMENT


    By Fidelia Agatha (2106715765)
    Class MK-J
    Credit Management
    ➢ Granting credit generally increases cash
    ➢ Costs of granting credit :
    - Chance the customers will not pay
    - Financing receivables
    ➢ Credit management examines the trade-off between increased sales and the
    costs of granting credit
    Components Of Credit Policy
    • Terms of sale
    - Credit period
    - Cash discount and discount period
    - Type of credit instrument
    • Credit analysis : distinguish between “good” customers that will pay and
    “bad” customers that won’t pay.
    The Cashflow From Granting Credit

    Credit Policy Effects


    1. Revenue effects
    - Delay in receiving cash from sales
    - May be able to increase price
    - May increase total sales
    2. Cost effects
    - Cost of the sale is still incurred eventhough the cash from the sale
    hasn’t been received
    - Probability of nonpayment : some percents of customers won’t pay
    product
    Total Cost Of Granting Credit
    • Carrying costs :
    - Required return on receivables
    - Losses from bad debts
    - Costs of managing credit and collections
    • Shortage costs
    - Lost sales due to a restrictive credit policy
    • Total cost curve = carrying costs + shortage costs
    Credit analysis is a process of deciding which customers receive credit
    • Gathering information
    - Financial statements
    - Credit reports
    - Banks
    - Payments history with the firm
    • Determining creditworthness

    Credit information :
    1. Financial statements : credit reports with customer’s payments history to
    other firms
    2. Banks : payment history with the company
    Five Cs Of Credit
    • Character – willingness to meet financial obligations
    • Capacity – ability to meet financial obligations out of operating cash flows
    • Capital – financial reserves
    • Collateral – assets pledged as security
    • Conditions – general economic conditions related to customer’s business

    Collection Policy
    • Monitoring receivables
    1. Keep an eye on average collection period relative to your credit terms
    2. Use an aging schedule to determine percentage of payments that are being
    made late
    • Collection policy
    - Delinquency letter
    - Telephone call
    - Collection agency
    - Legal action
    Inventory Management
    • Inventory can be a large percentage of a firm’s assets
    • There can be significant costs associated with carrying too much inventory
    • There can also be significant costs associated with not carrying enough inventory
    • Inventory management tries to find the optimal trade-off between carrying too much
    inventory versus not enough
    Types Of Inventory
    • Manufacturing firm
    • Raw material – starting point in production process
    • Work-in-progress
    • Finished goods – products ready to ship or sell
    • Remember that one firm’s “raw material” may be another firm’s “finished goods”
    •Different types of inventory can vary dramatically in terms of liquidity
    Inventory costs
    • Carrying costs – range from 20% to 40% of inventory value per year
    • Storage and tracking
    • Insurance and taxes
    • Losses due to obsolescence, deterioration, or theft
    • Opportunity cost of capital
    • Shortage costs
    • Restocking costs
    • Lost sales or lost customers
    • Consider both types of costs, and minimize the total cost
    Costs Of Holding Inventory
    Inventory Management
    The ABC Approach
    • Classify inventory by cost, demand, and need
    • Those items that have substantial shortage costs should be maintained in larger
    quantities than those with lower shortage costs
    • Generally maintain smaller quantities of expensive items
    • Maintain a substantial supply of less expensive basic materials

    The EDQ Model

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