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

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

Consider the case of Newtown Co.:

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

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

$90,000

$98,000

$85,000

$105,000

If the customer paid off the account after 15 days, Newtown Co. would receive .

Approximately 30% of Newtown Co.s customers take advantage of the discount and pay on the 10th day. The remaining 70% take an average of 35 days to pay off their accounts. What is Newtown Co.s days sales outstanding (DSO), or the average collection period?

27.5 days

26.1 days

24.8 days

28.9 days