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    Credit Policy

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    Vikash Jain
    The document discusses credit policies, which provide guidelines for evaluating potential customers who wish to purchase goods on credit. It outlines that credit policies establish credit standards and analyze credit to determine if and how much credit to extend. Credit standards represent basic eligibility criteria for receiving credit, and can be tight and restrictive or liberal and non-restrictive. Credit analysis involves obtaining and evaluating credit information from internal and external sources to make a decision on extending credit.

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    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd

    Credit Policy

    Uploaded by

    Vikash Jain
    4K views9 pages
    The document discusses credit policies, which provide guidelines for evaluating potential customers who wish to purchase goods on credit. It outlines that credit policies establish credit standards and analyze credit to determine if and how much credit to extend. Credit standards represent basic eligibility criteria for receiving credit, and can be tight and restrictive or liberal and non-restrictive. Credit analysis involves obtaining and evaluating credit information from internal and external sources to make a decision on extending credit.

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    The document discusses credit policies, which provide guidelines for evaluating potential customers who wish to purchase goods on credit. It outlines that credit policies establish credit standards and analyze credit to determine if and how much credit to extend. Credit standards represent basic eligibility criteria for receiving credit, and can be tight and restrictive or liberal and non-restrictive. Credit analysis involves obtaining and evaluating credit information from internal and external sources to make a decision on extending credit.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    4K views9 pages

    Credit Policy

    Uploaded by

    Vikash Jain
    The document discusses credit policies, which provide guidelines for evaluating potential customers who wish to purchase goods on credit. It outlines that credit policies establish credit standards and analyze credit to determine if and how much credit to extend. Credit standards represent basic eligibility criteria for receiving credit, and can be tight and restrictive or liberal and non-restrictive. Credit analysis involves obtaining and evaluating credit information from internal and external sources to make a decision on extending credit.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 9

    CREDIT POLICIES

    PRESENTED BY-

    RIKSHI RAJ GOGOI


    ROLL NO.- 64.
    MBA 2ND SEMESTER.

    12/08/2021
    Credit Policy

    Credit Policy:
    Guidelines addressing how a company evaluates potential
    customers who wish to buy on credit. Guidelines include credit
    terms that specify discounts, interest rates, and credit limit.

    12/08/2021
     Credit policy is the determination of credit standards
    and credit analysis.

    A credit policy of a firm provides the framework to


    determine
     Whether or not to extend credit to a customer and
     How much credit to extend.

    The credit policy of a firm has two dimensions:


     Credit standards and
     Credit analysis.

    12/08/2021
    Credit
    Creditstandards:
    standards:
     It represents the basic criteria or minimum requirement for
     It represents the basic criteria or minimum requirement for
    extending credit to a customer.
    extending credit to a customer.
    The credit standards may be – tight or restrictive and
    The credit standards may be – tight or restrictive and
    - liberal or non restrictive
    - liberal or non restrictive
    The trade-off with reference to credit standards covers
    The trade-off with reference to credit standards covers
     The collection cost
     The collection cost
     the average collection period/ investments in receivables.
     the average collection period/ investments in receivables.
     Level of bad debt losses and
     Level of bad debt losses and
     level of sales.
     level of sales.

    12/08/2021
    Collection costs:
    If more credit extended (relaxed) the collection cost will be more
    and If less credit extended (tightened credit standard) the cost will
    be less.

    Investment Receivables or the Average collection period:


     A relaxation in credit standards leads to higher average accounts
    receivable.

     But in case of tightening of credit standards the average accounts


    receivable will be lower (because of decrease in sales).

    12/08/2021
    Bad Debt Expenses:

    It also affect the credit standards.


    Bad debt expenses increase with relaxation in credit
    standards and decrease if credit standards become more
    restrictive.

    Sales volume:

    When credit standards are relaxed the sales are increased


    and in case of tightening the sales are decline.

    12/08/2021
    Credit Analysis
    It involves obtaining credit information and
    evaluation of credit applicants.

    Steps involved in credit investigation process:


     obtaining credit information and
     analysis of credit information

    Here the information are obtained from internal and external


    sources.
     Internal information are obtained from various forms and
    documents filled up by the customers.

     External information are collect from Financial Statements, Bank


    References, Trade References, etc.

    12/08/2021
    Analysis of Credit Information:

    Quantitative- It is based on the factual information available from


    the financial statements, the past records of the firm etc.

    Qualitative: here the information are obtained from the suppliers,


    bank references and specialist bureau reports.

    At last decision is taken whether credit should be extend to the


    customer or not.

    12/08/2021
    12/08/2021

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