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How can aging accounts receivable help managers set the terms of their cash discounts?

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Question added by Ahmed Saeed , Supply Chain and Purchasing Manager , Tuff Gear Ltd.
Date Posted: 2014/01/31
Khurrum Iqbal
by Khurrum Iqbal , Accountant , Akun Logistic Services

Aging would give mathematical/analytical over-view adhere to A/R policies /bench-marks/pre-established management standards, with the following possible considerations:

 

It depends "generally" upon customer/client credibility rating and past payment experience, secondly pie contirbution in total sales revenue. Higher sales revenue contribution, higher discounts & vise versa.

 

In case the client/customer by chance (associate person) have stake in business, then it will all depends upon management discretion/decision, in evaluating dicounting policies, with/without off-setting other related party bilateral transactions. 

 

Yester year(s) bad debts provision cut-offs & trends directly proportional to Sales trend and value contribution.  

 

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