4. Credit and collections management Effective credit management involves establishing credit standards for extending credit to customers, determining the company's terms of credit, and setting up procedures for invoicing and collecting past-due accounts. The following statement refers to a credit management policy. Select the best term to complete the sentence. A company's credit terms refer to the conditions of the credit sale, including cash discounts and due dates. Consider the case of the Henderson Company. The financial managers at the Henderson Company have been monitoring the company's receivables and have compiled the following information: All sales are on credit. Henderson's current terms are 2/10 net 30. 10% of Henderson's customers take advantage of the discount. Payments from its remaining customers are received, on average, in 53 days. Estimated credit sales are $170.000 million annually. Variable costs are 82% of gross sales. Credit evaluation and collection costs are 10% of gross sales. There are no bad debts to consider in this analysis. Using the preceding information, fill in the blanks in the following analysis: All sales are on credit. Henderson's current terms are 2/10 net 30. 10% of Henderson's customers take advantage of the discount. Payments from its remaining customers are received, on average, in 53 days. Estimated credit sales are $170.000 million annually. Variable costs are 82% of gross sales. Credit evaluation and collection costs are 10% of gross sales. There are no bad debts to consider in this analysis. Using the preceding information, fill in the blanks in the following analysis: Credit Analysis I. General Credit Policy Information Credit terms 2/10 net 30 48.7 days 10 days Days sales outstanding (DSO) for all customers DSO for customers who take the discount (10%) DSO for customers who forgo the discount (90%) II. Annual Credit Sales and Costs ($ millions) Gross sales 53 days $170.000 Net sales $166.600 $13.600 Amount paid by discount customers Amount paid by nondiscount customers Variable operating costs (82% of gross sales) Bad debts Credit evaluation and collection costs (10% of gross sales) $153.000 $139.40 $0.0 $17.00 All sales are on credit. Henderson's current terms are 2/10 net 30. 10% of Henderson's customers take advantage of the discount. Payments from its remaining customers are received, on average, in 53 days. Estimated credit sales are $170.000 million annually Variable costs are 82% of gross sales. Credit evaluation and collection costs are 10% of gross sales. There are no bad debts to consider in this analysis. Using the preceding information, fill in the blanks in the following analysis: Credit Analysis I. General Credit Policy Information Credit terms Days sales outstanding (DSO) for all customers DSO for customers who take the discount (10%) 2/10 net 30 48.7 days 10 days 53 days DSO for customers who forgo the discount (90%) II. Annual Credit Sales and Costs ($ millions) Gross sales $170.000 Net sales $166.600 v $13.600 $13.600 Amount paid by discount customers Amount paid by nondiscount customers Variable operating costs (82% of gross sales) Bad debts Credit evaluation and collection costs (10% of gross sales) $20.060 $20.030 All sales are on credit. Henderson's current terms are 2/10 net 30. 10% of Henderson's customers take advantage of the discount. Payments from its remaining customers are received, on average, in 53 days. Estimated credit sales are $170.000 million annually. Variable costs are 82% of gross sales. Credit evaluation and collection costs are 10% of gross sales. . There are no bad debts to consider in this analysis. Using the preceding information, fill in the blanks in the following analysis: Credit Analysis I. General Credit Policy Information $169.970 Credit terms Days sales outstanding (DSO) for all customers DSO for customers who take the discount (10%) DSO for customers who forgo the discount (90%) II. Annual Credit Sales and Costs ($ millions) $166.600 $173.060 $136.000 Gross sales Net sales $166.600 Amount paid by discount customers $13.600 $153.000 Amount paid by nondiscount customers Variable operating costs (82% of gross sales) Bad debts $139.40 $0.0 $17.00 Credit evaluation and collection costs (10% of gross sales)
