Page 71 - DBP5043

CHANGING THE CREDIT POLICY

A company will change its credit policy when they meet the following
goals:

1) Attracting new customers
2) Reduce the average collection period
3) Generate more profit from the increased costs

An analysis will be performed to see the impact on costs and
benefits resulting from changes in credit policy. This analysis is known
as Marginal Analysis.

This analysis will look at a possible comparison between the
contribution of additional profits generated from new sales level
with additional costs due to changes in credit policy.

When a credit policy is proposed to be changed, procedures
or methods for the analysis are as follows:

Estimate CHANGES IN PROFIT

1

Estimate the cost CHANGES IN AR INVESTMENT AND
STOCK
2

Estimate CHANGES IN CASH DISCOUNT
3

COMPARING THE COST OF ADDITIONAL BENEFITS
4