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MANAGEMENT OF WORKING CAPITAL
The management of debtors
• Credit policies are management guidelines concerning the extension of trade
credit and the management of accounts receivable.
• Credit control involves the initial investigation of potential credit customers and
the continuing control of outstanding accounts.
When evaluating a change in credit policy you should consider:
• The net change in contribution (sales – variable costs) or gross profit (sales –
cost of sales).
• Change in discounts given to debtors.
• Change in collection costs (admin costs involved in debt collection).
• Change in bad debts.
• Change in finance costs.
Increase in net working capital = increase in finance costs.
Decrease in net working capital = decrease in finance costs.
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