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MANAJEMEN KEUANGAN - Kuliah V 04.05.2009 CREDIT MANAGEMENT RWJJ CH. 28 FEUI Program Studi Maksi – PPAK Sugeng Purwanto Ph.D, FRM Tugas: Pelajari Exercises.

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Presentation on theme: "MANAJEMEN KEUANGAN - Kuliah V 04.05.2009 CREDIT MANAGEMENT RWJJ CH. 28 FEUI Program Studi Maksi – PPAK Sugeng Purwanto Ph.D, FRM Tugas: Pelajari Exercises."— Presentation transcript:

1 MANAJEMEN KEUANGAN - Kuliah V CREDIT MANAGEMENT RWJJ CH. 28 FEUI Program Studi Maksi – PPAK Sugeng Purwanto Ph.D, FRM Tugas: Pelajari Exercises Ch. 28 1

2 TERMS OF SALE The terms of sale refer to the period for which credit is granted, the cash discount, and the type of credit instrument. Example: 2/10, net 30. The customer has 30 days from the invoice date within which to pay. A cash discount 2% is to be given if payment is made in 10 days. Net 60. The customer has 60 days from the invoice date to pay and no discount is offered for early payment. 2

3 THE CASH FLOWs OF GRANTING CREDIT 3 Credit sale Is made Customer Mails check Firm Deposits Check In bank Bank Credit Firm’s account Cash collection Account receivable

4 FACTORS IN SETTING CREDIT PERIOD 1.The probability that the customer will not pay 2.The size of the account 3.The extent to which the goods are perishable 4

5 EXERCISE 28.1 EXERCISE

6 THE DECISION TO GRANT CREDIT: RISK AND INFORMATION Locust has determined that if it offers no credit to its customers, it can sell its existing computer software for $50 per program. It estimates that the costs to produce a typical computer program are $20 per program. The alternative is to offer credit, customers of Locust will pay one period later. With some probability. Locust has determined that if it offers credit, it can charge higher prices and expect higher sales. Decide which strategy? 1). Refuse Credit ? 2). Offer Credit ? 6

7 7 Cash In Dollars Level of credit extended Opportunity costs Carrying costs Total costs Optimal amount Of credit THE COSTS OF GRANTING CREDIT

8 8 Carrying costs are the costs associated with granting credit and making an investment in receivables. Opportunity costs are the lost sales from refusing to offer credit. The costs drop as credit is granted.

9 9 THE DECISION TO GRANT CREDIT Trade credit is more likely to be granted if 1.The selling firm has a cost advantage over other lenders 2.The selling firm can engage in price discrimination 3.The selling firm can obtain favorable tax treatment 4.The selling firm has no established reputation for quality products or services 5.The selling firm perceives a long-term strategic relationship

10 10 CREDIT ANALYSIS CREDIT INFORMATION 1. Financial statement 2. Credit reports on customer’s payment history with other firms 3. Banks 4. The customer’s payment history with the firm CREDIT SCORING 1.Character 2.Capacity 3.Capital 4.Collateral 5.Conditions

11 11 COLLECTION POLICY Average collection period Aging schedule Collection efforts Factoring

12 12 HOW TO FINANCE TRADE CREDIT Use of secured debt Use captive finance company Securitization. Selling A/R to a financial institution

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