Page 68 - DBP5043

b) Capital:

Measured by the financial position of customers, acquired
through the analysis of financial statements. It is important
to measure the ability to repay debts.

c) Capacity:

Looking at the ability of customers in terms of resources
other than cash, such as total assets hold, available
technology or other factors that can be used as a gauge to

ensure the ability of customers to pay the amount of credit
sales made.

d) Collateral:
Is a form of customer’s guarantee to pay to the firm.

e) Condition:

Referring to the environmental impact to customers such as
the economic, geographical areas and government
policies.

3) Collection policy:

More focus on credit terms, whether tight or loose. It emphasizes the
timeliness of payments and state any penalty or action that can be

taken if late payment is received.

For example: When a company sells on credit terms of "net 60", what
steps can be taken by the company if payment is not received on day
61? Whether the policy proceeds are loose or tight depends on the

actions implemented. The measures taken may be as follows:

10 days overdue --------- send a reminder letter
20 days overdue --------- send warning letters
30 days overdue --------- phone calls and verbal warnings

> 60 days overdue -------accounts submitted to collection agencies or
legal action will be taken