Effective credit management involves establishing credit standards for extending
ID: 2757627 • Letter: E
Question
Effective credit management involves establishing credit standards for extending credit to customers, determining the company's terms of credit, and setting up procedures for invoicing and collecting past-due accounts. The following statement refers to a credit management policy. Select the best term to complete the sentence. How a company handles its credit accounts, including methods of invoicing and collecting past-due accounts, is indicated by the company's Consider the case of Tan Co.: Tan Co. has a very attractive credit policy, and none of its customers pays in cash when the firm makes a sale. Tan Co. sells to its customers on credit terms of 3/10, net 30. If a customer bought $150,000 worth of goods and paid the firm cash eight days after the sale, how much cash would Tan Co. get from the customer? $145,500 $138,750 $150,000 $123,750 If the customer paid off the account after 15 days, Tan Co. would receive Approximately 35% of Tan Co.'s customers take advantage of the discount and pay on the 10th day. The remaining 65% take an average of 35 days to pay off their accounts. What is Tan Co.'s days sales outstanding (DSO), or the average collection period? 21.0 days 30.2 days 31.6 days 26.3 daysExplanation / Answer
how a company handles its credit accounts,including methods of invoicing and collecting past-due accounts,is indicated by company's credit policy.
Credit term of 3/10,net 30 means that the customer would receive a discount of 3% if the payment if done within 10 days after the purchase of goods.Since the customer paid for goods after 8 days within 10 days therefore he is entitled to 3% of discount therefore the net payment done by him after considering the discount
=(1-0.03)*$150,000
=$145,500
If the customer paid for goods after 15 days not within 10 days therefore he is not entitled to 3% of discount therefore the net payment done by him is $150,000 only.
DSO=0.35*10+0.65*35=3.5+22.8=26.3 days
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