Credit policy is a choice between the carrying costs associated with granting credit and the opportunity costs of the lost sales from refusing to offer credit. The optimal credit policy minimizes the sum of these 2 costs.
The aim the credit management is to speed the inflow of funds (credit extended to customers) and defer their outflow (credit received). In Europe, there are about four different kinds of credit practises. In Spain, the credit is granted for 90 days or more, and there are often delays in payment. In most western European countries including France, the credit is granted for about 60 days. In Germany, the credit is generally granted for 14 to 30 days. In some eastern European countries, it is about the same length as in Germany (or even less or immediate payment), but the default risk is considerably higher.
It is useful to know the customer’s probability of defaulting (credit analysis), but this information has a cost.
We can sell immediately our claims on customers to our bank or to a specialized firm (factoring). Generally, the firm will offer less for these because in case of default of your customer, you won’t have to pay the factoring firm, but the bank would debit your account by the amount of the unpaid debt.
Pricing internal transfers >>
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Corporate finance
The subject: corporate finance
PART ONE: CAPITAL EXPENDITURE
The present value
Investment
decisions
Practical
problems in capital budgeting
Firms evaluation
PART TWO. BASICS OF FINANCE
The financial
markets
Options
The market
efficiency
Risk
Mergers,
Acquisitions, and Corporate Control
International
Financial Management
PART THREE FINANCING DECISIONS
Corporate
financing
Dividend policy
and capital structure
PART FOUR FINANCIAL MANAGEMENT
Financial
planning
Short-term
financial management
Courses created and updated by Dr David Chelly, PhD in Management sciences from the University of Tours.
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