Question
The following information describes part of the cash collection procedure at Ritaj Sdn. Bhd. It is a small company which processes its daily transactions manually.
The following information describes part of the cash collection procedure at Ritaj Sdn. Bhd. It is a small company which processes its daily transactions manually. Every day, for the cash collection procedure, a clerk in the Accounts Receivable Department will review the Account Receivable (AR) subsidiary ledger for the payments that are due to be received. He then prepares a cash collection letter and sends it to the cash collection department to check the outstanding amount owed by its customers from credit sales to the firm. Upon receiving the document from the account receivable department, the cash collection clerk determines the volume of credit sales and the average collection period. Both of these factors have direct relationship with the firms credit and collection policies. Since accounts receivable is an important link in working capital management, the establishment and implementation of these policies will have direct impact on the firms operation and profitability as a whole. Thus, the cash collection clerk also makes two copies of the invoices whereby one copy is filed in the department and the second copy together with the cash collection letter is sent back to customers. The accounts receivable clerk will use the documents to update the AR subsidiary ledger before filing them in accordance to the credit standards stated by the company. This is to make sure that the credit standard provides the basis in specifying acceptable levels of credit risk that a firm is willing to bear and decide who will receive credit.
Explain FIVE (5) factors in determining customers credit risks.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started