risks, credit managers take into account five of credit: that is character, capacity, capital, ‘Cs’ collateral and condition. (Weston and Brigham, 1979, Kakuru 1999). Credit standards work efficiently only when there is system in place to control receivables (debtors). However during evaluation of the customers, the credit officers should also consider the other factors like future incomes. For example, a farmer might not be able to generate incomes now but his harvests after some time may generate him or her some money to pay the credit advanced to him or he. It means some creditors may not be able to pay as expected but he/she may pay them in a future if the assets are promising. Therefore, credit terms or the period for repayment should be fixed in a way that favours the customers. The amount to be paid within very period may be more or less than expected but the credit officer needs to talk to the customer to see and understand his/her position at the very time and take more or less from him in the next month or repayment date. 2.2.2 Credit terms Credit terms are stipulations under which firms grant credit to customers without incurring unnecessary high levels of bad debts (Maganda, 2002). A firm should try as much as possible to make once an organization make a decision to extend credit, the next thing to do is to decide on the terms of credit, that is, how much credit to be extended, for what period, and at what cost. The allowable credit terms are normally looked as the credit period and terms of discount (Brealey and Mayers, 1988). 2.2.3 Collection efforts Collection policy is required because not all customers (debtors) pay the firm’s bill in time. Collection efforts should aim at accelerating slow paying customers and reducing losses from bad debts. Collection effort policy is to ensure prompt collection for a faster turn over; keeping collections costs low and avoiding or reducing bad debts. In to accelerate payment of debts, some firms use services of factoring firms which act as agents to collect debts on behalf of the company at a commission.
risks, credit managers take into account five ‘Cs’ of credit: that is character, capacity, capital, collateral and condition. (Weston and Brigham, 1979, Kakuru 1999). Credit standards work efficiently only when there is system in place to control receivables (debtors). However during evaluation of the customers, the credit officers should also consider the other factors like future incomes. For example, a farmer might not be able to generate incomes now but his harvests after some time may generate him or her some money to pay the credit advanced to him or he. It means some creditors may not be able to pay as expected but he/she may pay them in a future if the assets are promising. Therefore, credit terms or the period for repayment should be fixed in a way that favours the customers. The amount to be paid within very period may be more or less than expected but the credit officer needs to talk to the customer to see and understand his/her position at the very time and take more or less from him in the next month or repayment date. 2.2.2 Credit terms Credit terms are stipulations under which firms grant credit to customers without incurring unnecessary high levels of bad debts (Maganda, 2002). A firm should try as much as possible to make once an organization make a decision to extend credit, the next thing to do is to decide on the terms of credit, that is, how much credit to be extended, for what period, and at what cost. The allowable credit terms are normally looked as the credit period and terms of discount (Brealey and Mayers, 1988). 2.2.3 Collection efforts Collection policy is required because not all customers (debtors) pay the firm’s bill in time. Collection efforts should aim at accelerating slow paying customers and reducing losses from bad debts. Collection effort policy is to ensure prompt collection for a faster turn over; keeping collections costs low and avoiding or reducing bad debts. In to accelerate payment of debts, some firms use services of factoring firms which act as agents to collect debts on behalf of the company at a commission.
Candia-.docx