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Chapter 2: Working Capital Management (Management of Receivables…
Chapter 2:
Working Capital Management
Management Of Inventory
Disadvantages Of High Level Of Inventories
Expose to inventory obsolescence
High costs of fund tied up in inventories
High total inventory cost
Advantages Of High Level Inventories
Efficiency in servicing customers demand
Fill order more quickly
Get quantity discounts for buying bulk
Assured of no production delayed
Might increase sales as more inventory as display bring more opportunity to catch the customers' eyes
Costs Of Holding Inventory (Type Of Cost)
Ordering Costs
Carrying Costs
Costs Of Running Short
Classified as:
work-in-process (partially finished goods requiring additional work before they become finished goods)
finished goods (goods on which production has been completed but are not yet sold
raw material (basic materials purchased to be used in the firm's production operation
Involves the control of the assets that are produced to be sold in normal course of the firm's operation
Goals of Inventory Management
to ensure that the inventories needed to sustain operations are available
to hols costs of ordering and carrying inventories to the lowest possible level
Management of
Receivables
created when a firm sells goods or performs services on credit rather than on cash basis
Monitoring Methods
Aging schedule
Days sales outstanding
Elements of credit policy
Credit period
Credit Standards
Cash discount
Elements of credit policy
2.Credit period
3.Credit standards
1.Cash discount
4.Collection Policy
5.Credit Line
5C (credit selection)
Collateral
Capacity
Capital
Conditons
Character
Collection process
Late payments
Notify customer of arrears
Charge interest on outstanding balances
Unpaid amounts
Allow no further purchases on credit
Additional opstion e.g take legal action
the balance due from a customer