Page 203 - 5.2 i. Manac Finance ITC Summarised Notes

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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