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How Can Management Practices Speed Receivable Collection

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How can management practices speed receivables collection? Which practices slow this collection? How have recent changes in the banking industry influenced the process?

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The solution discusses how management practices can speed receivable collection.

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ACCOUNTS RECEIVABLE COLLECTION

Management practices that speed receivables collection
1. Discount for early payment
This is an incentive to a borrower that a certain percentage discount from the payable amount if payment is made earlier than the maturity date agreed. An example of this in a 2/10 net 30 credit term. This would mean that when the balance is paid 10 days earlier than maturity, the borrower/debtor is given a 2% discount. While this would possibly induce payment, it would mean cost on the part of the company. The 2% discount would be considered a cost because it will be deducted from the payable amount. A cost benefit analysis should be made comparing the benefit from the speeding up of collection and the cost which is a 2% ...

Solution provided by:
Elisa Valdez, PhD
Education
  • Bachelor of Science in Business Administration, University of the Philippines
  • Master in Business Administration, Saint Mary's University
  • Doctor of Philosophy in Education, University of the Philippines
  • Doctor in Business Adminstration (IP), Polytechnic University of the Philippines
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