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1.What would happen if your banker required you to shorten your Days Sales Outstanding and average...

1.What would happen if your banker required you to shorten your Days Sales Outstanding and average collection period? How would you accomplish this?

2.How do we determine the cost of trade credit? What is trade credit ?

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1. The formula forc. Days sales outstanding Accounts receivable No of days in period Total credit sales Average collection period-No of days during the period Accounts receivable turnover ratio The total amount invested in the accoseeivable will fall. Accomplish the above target The total credit period given to customers shall be reduced to achieve the above target. Ase a control over recovery shall be made to ensure that the recovery is made as per the company policy. 2. The cost of the trade credit is the discount that is offered by the suppliers for early payment. For eg credit policy may have terms of trade that look something like this 3/15, net 30. This means that the supplier will offer you a 3 % discount if you pay your bill in 15 days. If you dont opt for that discount, then the bill is due in 30 days. Cost of credit-Discount % (1-discountl Full allowed days- discount days) Trade credit is the agreement with the suppliers of the firm to pay for goods and service received at a later period. The number of days is dependent on the credit policy of the supplier.

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