Question

1. Describe how the company should evaluate the decision below:

a. A corporation is considering a proposed change in its credit policy.

Provide enough information in your answers to demonstrate your understanding, but do not feel obligated to fill the entire space or to provide information unrelated to the question. For some explanations, it may be sufficient to provide the equation used for the analysis together with an explanation of the meaning of the variables in that equation.

Answer 1

Credit evaluation is an important measure that must followed to check the creditworthiness of the customer. A customer credit worthiness may be evaluated using various quantitative technique like regression analysis. Regression analysis is usefull when a large number of customers are there seeking credit. Credit policies of a company plays an important role in the collection of account receivables. It must be not so stringent or tightened to effect it's sales.

Thus, if a company is considering a proposed change in its credit policy, it must follow the following steps:

1. Establish a credit policy: A sound credit policy must be established so that it won't effect it's sales. Company must review its custmomer's credit worthiness and decide the limit of the credit period. It must not be leninent or stringent to effect it's revenue.
2. Establishing the billing policy: Billing policy is related to the right time of biiling and sending invoice to the customer. Customer must be invoiced when the order is proceesed rather than when it is shipped. Large orders must be billed first.
3. Collection Policy: It is related to the collection of the payment. An appropriate collection system must be there to collect checks from customers like lock box system and post office box for remote customers for timely payment on or before the due date.