Amounts of money owed to a firm by customers who have bought goods or services on credit. A current asset, the accounts receivable account is also called receivables.
Credit standard - The minimum quality of creditworthiness of a credit applicant that is acceptable to the firm.
Credit period - The total length of time over which
credit is extended to a customer to pay a bill.
Cash discount period - The period of time during
which a cash discount can be taken for early payment.
Cash discount - A percent (%) reduction in sales or purchase price allowed for early payment of invoices. It is an incentive for credit customers to pay invoices in a timely fashion.
Seasonal dating - Credit terms that encourage
the buyer of seasonal products to take delivery before the peak sales period and to defer payment until after the peak sales period. Credit and Collection Policies The several decisions the quality of the account accepted; the length of the credit period; the size of the cash discount given; any special terms, such as seasonal datings; and the level of collection expenditures. Sources of Information
Financial Statements Credit Ratings and Reports Bank Checking Trade Checking The Companys Own Experience
Credit-scoring system - A system used to decide whether to grant credit by assigning numerical scores to various characteristics related to creditworthiness. Line of credit - A limit to the amount of credit extended to an account. Purchaser can buy on credit up to that limit. ABC method of inventory control - Method that controls expensive inventory items more closely than less expensive items. Economic Order Quantity
Economic Order Quantity (EOQ)- The quantity of an inventory item to order so that total inventory costs are minimized over the firms planning period.
Formula in getting the average quantity;
Average inventory = Q/2
Total inventory cost (T ) = C(Q/2) + O(S/Q)
where Q is the quantity ordered and is assumed to be constant for the planning period.
NOTE; that the higher the order quantity, Q, the
higher the total carrying costs, but the lower the total ordering costs. The lower the order quantity, the lower the total carrying costs, but the higher the total ordering costs. Order Point
Order point - The quantity to which inventory must fall in order to signal that an order must be placed to replenish an item. Order point (OP) = Lead time Daily usage
Lead time - The length of time between the
placement of an order for an inventory item and when the item is received in inventory. Safety Stock
Safety stock- Inventory stock held in reserve as a cushion against uncertain demand (or usage) and replenishment lead time.
Order point (OP) = (Average lead time
Average daily usage) + Safety stock Just-in-Time
Just-in-time (JIT) - An approach to inventory management and control in which inventories are acquired and inserted in production at the exact times they are needed.
Supply chain management (SCM)- Managing the process of moving goods, services, and information from suppliers to end customers. Business-to- business (B2B) Business-to-business (B2B) - Communications and transactions conducted between businesses, as opposed to between businesses and end customers. Expressed in alphanumeric form (i.e., B2B), it refers to such transactions conducted over the Internet.
B2B exchange Business-to-business Internet marketplace that matches supply and demand by real time auction bidding. What is needed to make a "Just-in-time" system work
Geographic concentration Dependable quality Manageable supplier network Controlled transportation system Manufacturing Flexibility Small lot sizes Efficient receiving and material handling Strong management commitment