External and Internal Factors Influencing Credit Policy: ACC 557 Assignment – Week 5, Week 5

Summary

External and internal factors affect a company's credit policy. Students learn how to assess these factors and recommend strategies to manage bad debt.

Factors Influencing Credit Policy

External and internal factors influence credit policy. The most significant factor is maintaining proper cash flow. This helps avoid cash flow problems and manage accounts receivables.

Strategy to Minimize Bad Debt

A strategy to minimize bad debt exposure is needed. A company should implement this strategy to reduce the risk of high-risk customers. The document discusses how to do this.

Writing an Effective Credit Policy

An effective credit policy starts with understanding financial exposure. It also involves deciding how much working capital to risk or invest in customers.

Using Quality Information

Quality information helps in managing risk. A well-thought-out credit application collects relevant information. It also seeks permission for credit investigation.

Key terms

Credit Policy

Rules and guidelines for extending credit to customers.

Cash Flow

The movement of money into and out of a business.

Accounts Receivables

Money owed to a business by customers for goods or services.

Credit Application

A form filled by customers seeking credit, allowing investigation.

Bad Debt

Money owed to a business that is unlikely to be paid.

Financial Exposure

The amount of money at risk in extending credit to customers.

Questions this document helps with

• What are the main external factors affecting credit policy?
• How can a company minimize bad debt exposure?
• What information should a credit application collect?

Summary written with AI from the document's text.