Credit Analysis


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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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