Download ACC 557 Week 5 DQ2 “ Receivables” Please respond to the

ACC 557 Week 5 DQ2
“ Receivables” Please respond to the following:
Assess the external and internal factors that influence credit policy and decision making within a
company that extends credit to its customer when providing a good or service on account.
Indicate the factor of most significance in today’s business environment. Provide support for
your rationale.
Assuming that a certain percentage of customers will be deemed high risk, recommend a strategy
to minimize a company’s bad debt exposure. Indicate how the company would implement the
strategy. Provide support for your recommendation
“Financial risk refers to the risks that businesses run when making investments, planning for the
future and conducting day-to-day operations.” (“External & Internal,”). External risks have to do
with making decisions that are dependent on outside factors and internal risks are dependent on
internal factors. Internal risks have to do with strategies and programs that the company puts into
place. Choices made by those who work for the company can affect the outcome. A credit policy
is designed by the company once they decide that they are willing to take the risk of extending
credit to customers. The factor that is most affected in today’s business environment is the
economy and credit scores. You must ensure that the consumer you want to lend money too, or
give a product or service to is likely to repay. Collecting bad debts is not fun, nor is it easy to do.
All businesses will have some customers who are either late making payments or do not make
payments at all. The economy is affecting unemployment rates, and people unemployed cannot
pay their bills (“ What is credit,”). As a result, their credit ratings drop and the lower they get, the
less chance they have of receiving any credit.
The company’s credit policy should consist of terms of sale, credit analysis of the consumer, and
a collection policy (“What is credit,”) . Terms of the sale should include how long they have to
pay back, any cash discounts available, the discount period, and the type of credit instrument.
Customer demand should be analyzed to ensure that the credit policy is accurate. A credit limit
should be set and the interest should be in direct relation to the consumer’s credit score. The
better the credit, the lower the interest rate payment assigned to the account. The collection
policy is set to assist the company with identifying those accounts with issues. Late accounts are
charged a late fee. After 10 days you could send a letter demanding payment. The longer the debt
is outstanding the higher the likelihood that you will not be paid. You should include settlement
options for obtaining partial payment as well as criteria for writing off the balance as a bad debt
(Soliman).
External & internal factors of financial risk.(n.d.). Retrieved from
http://www.ehow.com/list_7465193_external-internal-factors-financial-risk.html