Credit Analysis
Involves evaluating capacity of customers requiring credit period. Criteria of measuring creditworthiness of prospective customers :
1) Character of customer
2) Capacity to repay
3) Capital / financial position of customer
4) Collateral Security provided by customer
5) Conditions (Economic, Social , competition etc.)
Opportunity Cost
Opportunity/profit foregone(givenup) as a result of blocking the money in Debtors instead of investing it in other manner.
Credit Policy Variables
Determining Credit Policy involves determining the following variables:
a) Credit evaluation and Credit Rating of customers
b) Costs associated with accounts receivables- Collection cost , Capital cost , Delinquency cost and Default cost .
c) Collection methods of receivables
d) Control of Receivables through – Days Sales Outstanding ,Ageing Schedule and ABC Analysis
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