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 Three Waters Co$.$:

Three Waters Co$.\text{'}$s CFO has decided to take a closer look at the company's credit policy. Three Waters Co$.$ has annual sales of $$402\mathrm{.}8$

million, and it currently has an accounts receivable balance of $$46\mathrm{.}3$ million. The first step in analyzing the firm's credit policy is to

determine its days sales outstanding $($DSO$).$

Based on this information, Three Waters Co$.\text{'}$s DSO is

$($Note: Use $365$ days as the length of a year in all calculations.$)$

The average DSO for Three Waters Co$.\text{'}$s industry is $53\mathrm{.}9$ days. Assuming that its sales stayed the same, what would be Three Waters Co$.$s receivables

balance if it maintained the industry average DSO?

Three Waters Co$.\text{'}$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 Three Waters Co$.$ to lose $3\%$ of its sales revenue. What

would Three Waters Co$.\text{'}$s expected accounts receivables balance be if it decides to tighten its credit policy?

$$32,113,650$

$$38,536,380$

$$30,507,968$

$$33,719,333$