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.

1. How a company handles its credit accounts, including methods of invoicing and collecting past-due accounts, is indicated by the companys _______.

Consider the case of Mammoth Pictures Inc.:

Mammoth Pictures Inc. has a very attractive credit policy, and none of its customers pays in cash when the firm makes a sale. Mammoth Pictures Inc. sells to its customers on credit terms of 3/10, net 30.

2. If a customer bought $125,000 worth of goods and paid the firm cash eight days after the sale, how much cash would Mammoth Pictures Inc. get from the customer?

$100,000

$106,250

$109,375

$121,250

3. If the customer paid off the account after 15 days, Mammoth Pictures Inc. would receive _____ .

4. Approximately 20% of Mammoth Pictures Inc.s customers take advantage of the discount and pay on the 10th day. The remaining 80% take an average of 35 days to pay off their accounts. What is Mammoth Pictures Inc.s days sales outstanding (DSO), or the average collection period?

25.50 days

27.00 days

34.50 days

30.00 days