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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
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. How a company handles its credit accounts, including methods of invoicing and collecting past-due accounts, is indicated by the company's Consider the case of Western Gas & Electric Co.: Western Gas & Electric Co.'s CFO has decided to take a closer look at the company's credit policy. Western Gas & Electric Co. has annual sales of $396.3 million, and it currently has an accounts receivable balance of $45.9 million. The first step in analyzing the firm's credit policy is to determine its days sales outstanding (DSO). . (Note: Use 365 days as the length of Based on this information, Western Gas & Electric Co.'s DSO is a year in all calculations.) The average DSO for Western Gas & Electric Co.'s industry is 54.1 days. Assuming that its sales stayed the same, what would be Western Gas & Electric Co.'s receivables balance if it maintained the industry average DSO? Western Gas & Electric 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 Western Gas & Electric Co. to lose 4% of its sales revenue. What would Western Gas & Electric Co.'s expected accounts receivables balance be if it decides to tighten its credit policy? O $31,269,690 $28,142,721 $32,833,175 $29,706,206
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