Effective credit management involves establishing credit standards for extending credit to customers, determining the companys 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.

a. The conditions of the credit sale, including cash discounts and due dates, are indicated by the companys ______.

(collection policy/ credit standards/ credit terms)

Consider the case of Stowe-Arts Holdings Co.:

Stowe-Arts Holdings Co. has a very attractive credit policy, and none of its customers pays in cash when the firm makes a sale. Stowe-Arts Holdings Co. sells to its customers on credit terms of 2/10, net 30.

b. If a customer bought $100,000 worth of goods and paid the firm cash eight days after the sale, how much cash would Stowe-Arts Holdings Co. get from the customer?

$100,000

$80,000

$98,000

$90,000

c. If the customer paid off the account after 15 days, Stowe-Arts Holdings Co. would receive ______.

($80,000/ 98,000/ 90,000/ 100,000)

d.

Approximately 35% of Stowe-Arts Holdings Co.s customers take advantage of the discount and pay on the 10th day. The remaining 65% take an average of 35 days to pay off their accounts. What is Stowe-Arts Holdings Co.s days sales outstanding (DSO), or the average collection period?

22.31 days

24.94 days

21.00 days

26.25 days