The management of trade credit is about making decisions; decisions about how much credit investigation should be performed, who should get credit, how much credit should be granted, and so forth. Credit decision-making can be divided two parts: credit analysis and credit policy-making. Credit analysis is frontline decision-making: decisions about credit investigation, credit-granting, and collection that are made regarding individual customers. This book covers the second part by presenting the principles inherent in advantageous credit policy, centering on the benefits and costs associated with various credit policy decisions.This book is primarily intended for people who make trade credit policy for business firms and for people who perform credit analysis and frontline decisions regarding customers.
Included with this text is a USB drive containing all the numerical tables from the chapters, cases, and appendices as Microsoft Excel files. These tables can be customized to help with decision-making in many circumstances.
Table of Contents
Preface
How to Use the Disk
Chapter 1. Trade Credit Management and the Goals of the Firm
The Goals of the Firm and Their Implementation
Implementing the Value Maximization Goal
Problems Inherent in a Classical Organizational Strategy
Dealing with Goal Conflict in Credit Departments
Implications for Credit Policy
Effects of Credit Policy Decisions
Principles for Analyzing Credit Policy Decisions
The Income Statement Approach to Analyzing Credit Policy Effects
The Present Value Approach to Analyzing Credit Policy Effects
Summary of Policy Implications in this Chapter
Case for Discussion and Analysis
Suggestions for Analysis
Chapter 2. Credit Investigation Policy
Introduction to the Trade-offs in Credit Investigation Policy
A Conceptual Model of the Credit Investigation Process
The Effects of Exposure on Credit Investigation Policy
The Effects of Profitability on Credit Investigation Policy
Next-Decision Analysis
Summary of the Policy Implications in this Chapter
Case for Discussion and Analysis
Suggestions for Analysis
Chapter 3. Credit Granting Decisions
The Traditional Approach to Credit-Granting Decisions
Overall Tradeoffs in Credit-Granting from a Profitability Standpoint: Credit Standards
Making Credit Decisions on Individual Accounts: A Present Value Approach
Parameter Estimation for the Present Value Approach
Sensitivity Analysis of Parameter Estimates
Issues in Credit-Granting Decisions
Summary of the Policy Implications in this Chapter
Case for Discussion and Analysis
Suggestions for Analysis
Appendix to Chapter 3
An Expected Present Value Model of Credit-Granting With a Cash Discount
Chapter 4. Negotiating the Conditions of Credit-Granting
What Credit Enhancements Do
Valuing Credit Enhancements
Negotiating Credit Terms
Summary of Policy Implications in this Chapter
Case for Discussion and Analysis
Suggestions for Analysis
Chapter 5. Credit Limits
Distinctions Among Credit Limits
Credit Limits and Credit Investigation
Credit Limits and Other Risks
Interactions Between Information and Risk Credit Limits
Summary of the Policy Implications in this Chapter
Case for Discussion and Analysis
Suggestions for Analysis
Chapter 6. Expert and Statistical Scoring Systems
Advantages of Expert and Statistical Scoring Systems
Principles of Expert Systems for Credit Decisions
Developing a Statistical Scoring System
Using Public-Domain and Commercial Statistical Scoring Models
Summary of the Policy Implications in this Chapter
Case for Discussion and Analysis
Suggestions for Analysis
Chapter 7. Terms of Sale and Collection Policy
Legal Aspects of Terms of Sale Policy
Evaluating Terms of Sale Changes
Terms with EDI and Electronic Payments
Cash Discounts and Creditworthiness
Collection Policy
Summary of the Policy Implications in this Chapter
Case for Discussion and Analysis
Suggestions for Analysis
Chapter 8. Monitoring Credit Performance
Principles of Monitoring Credit Performance
Measuring Discount Expense
Measuring Collection Rates: DSO
Measuring Bad Debt Expense
Comparing Performance to Budgets
Variance Analysis of Accounts Receivable Balances
Summary of the Policy Implications in this Chapter
Case for Discussion and Analysis
Suggestions for Analysis
Chapter 9. Credit Strategy
Introduction to Competitive Strategy
Credit Policy When the Competitive Strategy is Differentiation
Credit Policy When the Competitive Strategy is Cost Leadership
Outsourcing Credit Functions
Credit Strategies for Smaller Firms
Summary of the Policy Implications in this Chapter
Case for Discussion and Analysis
Suggestions for Analysis