credit period

Examples of credit period in the following topics:

• Using the Receivables Turnover Ratio

  • The receivables turnover ratio, also called the debtor's turnover ratio, is an accounting measure used to measure how effective a company is in extending credit as well as collecting debts.
  • A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient; in contrast, a low ratio implies the company is not making the timely collection of credit.
  • $\dfrac{\text{Trade receivables}}{\text{Credit sales} \cdot 365} = \text{Average collection period in days}$
  • Finally, the average creditor payment period can be calculated as follows:
  • $\dfrac{\text{Trade payables}}{\text{Credit purchases} \cdot 365} = \text{Average payment period in days}$

• Activity Ratios

  • Cash Conversion Cycle - Inventory Conversion Period + Receivable Conversion Period - Payable Conversion Period

• Credit Operations

  • Organizations that offer credit to their customers frequently employ a credit manager .
  • A line of credit is any credit source extended to a business or individual by a bank or other financial institution.
  • A line of credit may take several forms, such as overdraft protection, demand loan, special purpose, export packing credit, term loan, discounting, purchase of commercial bills, traditional revolving credit card account, etc.
  • A revolving credit line provides a borrower with a maximum aggregate amount of capital, available over a specified period of time.
  • Each credit line is borrowed for a set period of time, usually one, three, or six months, after which time it is technically repayable.

• Calculating the Cash Flow Cycle

  • =Inventory conversion period + Receivables conversion period – Payables conversion period
  • Accounts Receivable / (Credit Sales / 365)
  • Our aim of studying cash conversion cycle and its calculation is to change the policies relating to credit purchase and credit sales.
  • We can change our standard of payment of credit purchase or getting cash from our debtors on the basis of reports of cash conversion cycle.
  • If it tells good cash liquidity position, we can maintain our past credit policies.

• Days Sales Outstanding

  • Days sales outstanding (also called DSO or days receivables) is a calculation used by a company to estimate their average collection period.
  • In accountancy, days sales outstanding (also called DSO or days receivables) is a calculation used by a company to estimate their average collection period.
  • The days sales outstanding figure is an index of the relationship between outstanding receivables and credit account sales achieved over a given period.
  • A low ratio may indicate the firm's credit policy is too rigorous, which may be hampering sales.
  • Many financial reports will state Receivables Turnover defined as Net Credit Account Sales / Trade Receivables; divide this value into the time period in days to get DSO.

• Setting a Credit Policy

  • To establish a credit policy, a company must establish credit standards, credit terms, and a collection policy.
  • Management must decide on credit standards, which involves decisions on how much credit risk to assume.
  • Another important factor in determining credit standards involves a company evaluating the credit worthiness, or credit score, of an individual or business.
  • After establishing credit standards, the firm must decide on the length of the period that would be allowed before payment must be made and whether or not they will offer a discount for early payments.
  • Seasonal discount (for orders placed in a slack period for example).

• The Periodic Table of Elements

  • Although precursors exist, Dmitri Mendeleev is generally credited with the publication, in 1869, of the first widely recognized periodic table.
  • Groups usually have more significant periodic trends than do periods and blocks, which are explained below.
  • A period is a horizontal row in the periodic table.
  • Here is the complete periodic table with atomic numbers, groups, and periods.
  • Explain how properties of elements vary within groups and across periods in the periodic table

• Credit Cards

  • For example, if a user has a $1,000 transaction and repaid it in full within this grace period, there would be no interest charged.
  • Credit cards are issued by an issuer like a bank or credit union after an account has been approved by the credit provider, after which cardholders can use it to make purchases at merchants accepting that card.
  • As all credit cards charge fees and interest, some customers become so indebted to their credit card provider that they are driven to bankruptcy.
  • Merchants are charged several fees for accepting credit cards.
  • Merchants may charge users a "credit card supplement," either a fixed amount or a percentage, for payment by credit card.

• Trade Credit or Accounts Payable

  • Trade credit is the largest use of capital for a majority of B2B sellers; Accounts Payable is money owed by a firm to its suppliers.
  • Trade credit for Wal-Mart is eight times the amount of capital invested by shareholders.
  • There are many forms of trade credit in common use; often industry-specific.
  • Households usually track and pay on a monthly basis manually by using checks, credit cards, or online banking.
  • Commonly, a supplier will ship a product, issue an invoice, and collect payment later, which describes a cash conversion cycle, a period of time during which the supplier has already paid for raw materials but hasn't been paid in return by the final customer.

• Present Value of Annuity

  • Credit is happy with his $1,000 monthly payment, but Mr.
  • Credit, and we would like the future values to be equal.
  • Credit, go to buy the same car that costs $15,000.
  • Credit wants to make monthly payments for five years.
  • Credit, and we would like them to be the same.