Effective credit management involves establishing credit standards for extending credit to customers, determining the company$$s credit terms, 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.

The minimum financial strength a customer must have to be granted credit is indicated by the company$$s $.$

Consider the case of Water and Power Co$.$:

Water and Power Co$.$s CFO has decided to take a closer look at the company$$s credit policy. Water and Power Co$.$ has annual sales of $$402\mathrm{.}8$ million, and it currently has an accounts receivable balance of $$47\mathrm{.}6$ million. The first step in analyzing the firm$$s credit policy is to determine its days sales outstanding $($DSO$).$

Based on this information, Water and Power Co$.$s DSO is $.($Note: Use $365$ days as the length of a year in all calculations.$)$

The average DSO for Water and Power Co$.$s industry is $51\mathrm{.}7$ days. Assuming that its sales stayed the same, what would be Water and Power Co$.$s receivables balance if it maintained the industry average DSO?

Water and Power Co$.$s CFO thinks that the company has not done a very good job of enforcing its credit policy. The CFO believes that if the company were to better enforce its credit policy, it would reduce its DSO to $30$ days; however, this will cause Water and Power Co$.$ to lose $7\%$ of its sales revenue. What would Water and Power Co$.$s expected accounts receivables balance be if it decides to tighten its credit policy?

$$32,328,860$

$$26,170,982$

$$36,947,268$

$$30,789,390$