Firms grant credit to customers as a way to increase sales. However, granting credit also exposes...

Firms grant credit to customers as a way to increase sales. However, granting credit also exposes the firm to the risk of uncollectible accounts. List and describe three actions a firm can take to reduce the risk of bad debt expense. For each action listed, describe the potential costs involved with these steps.

Solutions

Expert Solution

1.Appointment of Recovery agent/Factoring

The most practical way to reduce or minimize the risk of bad debt is appointing a factor. Make a clarity about the terms with agents both in Recourse and non recourse factoring.Always try to convince the factor to reduce the recovery period to earlier as possible with best economical fees.In other words net savings will be always more than the cost to be incurred for the service.

2.Discount Scheme
Another kind of attractive way to reduce the risk is to introduction of discount scheme. Customers should be provided with cash discount for payments on or before a predetermined date.

3. Intimate the credit terms & Charge a fee for late payment.
Late payment fees should be properly explained in your agreement and on every invoice you send to customers. In good communication, make understand your customer that you will charge interest and any or all recovery and legal fees incurred because of late payment.

ekkarill92 answered 11 months ago

Next > < Previous

Related Solutions

OfficeMart Inc. has "cash and carry" customers and credit customers. OfficeMart estimates that 30% of monthly sales are to cash customers, while the remaining sales are to credit customers.

Schedule of Cash Collections of Accounts Receivable OfficeMart Inc. has "cash and carry" customers and credit customers. OfficeMart estimates that 30% of monthly sales are to cash customers, while the remaining sales are to credit customers. Of the credit customers, 20% pay their accounts in the month of sale, while the remaining 80% pay their accounts in the month following the month of sale. Projected sales for the next three months are as follows: October $114,000 November 143,000 December...

Dyson is considering changing the credit term for its customers and also enforcing its credit policy...

Dyson is considering changing the credit term for its customers and also enforcing its credit policy more strongly. Dyson’s annual sales is $13 million and the current credit term is 3/30, net 45. Right now, 10% of the customer paid by cash, 20% of the customer paid in Day 30, 50% of the customer paid in Day 45 and still take the discount (which they shouldn’t), and 20% of the customer paid late in Day 55. Dyson wants to change...

1. Easing credit standards or who qualifies for credit should cause credit sales to: a. Increase ...

1. Easing credit standards or who qualifies for credit should cause credit sales to: a. Increase b. Decrease c. No change 2. The Additional Sales associated with easing credit standards when calculating profit margin is based on: a. Average Cost b. Average fixed Cost c. Average Variable Cost 3. All credit sales customers will take the credit discount. a. True b. False

When a company lets customers buy on credit, the company attracts more customers. Allowing sales on...

When a company lets customers buy on credit, the company attracts more customers. Allowing sales on credit is a part of doing business. However, it is not without risk! The result may be attracting some customers who will never pay the amount they owe to the business. When this money is not paid, the business has an uncollectible account which must be written-off. If a business has too many uncollectible accounts, the business suffers and the end result can spell...

Companies require, sometimes, to be flexible with the customers to enhance revenues, also firms requires management...

Companies require, sometimes, to be flexible with the customers to enhance revenues, also firms requires management control over the inventories to minimize investments, these two concepts affects revenues and cost of goods sold, explain how Dollar General Corporation manage these two concepts. Explain how Dollar General Corporation have adopted the Ecommerce as part of the strategy to expand its operations over new customers or new geographic areas.

Write a Persuasive speech on "Ghost." Citing sources is also a great way to increase credibility....

Write a Persuasive speech on "Ghost." Citing sources is also a great way to increase credibility. It shows that you’ve thoroughly researched your topic. When you state a fact, statistic or claim, it's imperative to tell the audience where the information came from. You can't just say, "Studies show...." we need to know WHAT the study was and who did it. We're bombarded with facts every day and, as you well know, we want to know the validity of information...

Kennedy Company is thinking about extending trade credit to new customers. This will increase the annual...

Kennedy Company is thinking about extending trade credit to new customers. This will increase the annual sales by $510,000 if credit is extended to these customers. Of the new accounts receivable related to these sales, 11% will be uncollectible. Additional collection costs will be 8% of sales. Besides, production and selling costs will be 65% of sales. The company is in a 30% tax bracket. 11. What is the amount of additional collection costs? $40,800 $56,100 $331,500 $510,000 None of...

Randy Company is thinking about extending trade credit to new customers. This will increase the annual...

Randy Company is thinking about extending trade credit to new customers. This will increase the annual sales by $400,000 if credit is extended to these customers. Of the new accounts receivable related to these sales, 10% will be uncollectible. Additional collection costs will be 8% of sales. Besides, production and selling costs will be 85% of sales. The company is in a 40% tax bracket. 16. What is the amount of additional collection costs? * a-$32,000 b- $40,000 c- $340,000...

please comment on post The major advantage of extending credit sales is that it will increase...

please comment on post The major advantage of extending credit sales is that it will increase sales revenue. This is because customers who can't produce cash today are still able to buy the good or service of their choice. Extending credit sales is usually a good idea for businesses, but there are a few important factors to consider. First, the business needs sufficient cash flow to account for Cost of Goods Sold (inventory). Customers' payments may delayed, but suppliers still...

2- Banks have all sorts of information about their customers and they also use credit history...

2- Banks have all sorts of information about their customers and they also use credit history of those customers from external sources when they assess applications eligibility of extend a loan. Suggest how Data Analytics could be used by banks to get a clear view of their customers’ eligibility for a loan. Assume the bank has access to a customer’s loan history, credit card transactions, deposit history, and credit deposit registration. Given these sources of information, discuss how the bank...

Subjects