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Financial Management - Working capital management

Q: What are the 5 C's of credit?

1. The customer's character 2. The customer's capacity to pay 3. The customer's capital 4.The collateral provided by the customer 5. The condition of the customer’s business

4 important questions on Financial Management - Working capital management

What are trade and consumer credit?

Trade credit: Bills awaiting payment from 1 company to another (B2B).

Consumer credit: Bills awaiting payment from the final customer to a company (B2C).

What is a credit analysis?

It is a procedure to determine the likelihood a customer will pay their bills. Credit agencies provide reports on the credit worthiness of a potential customer and financial ratios can be calculated to help determine the customers ability to pay its bills.

What are the 5 C's of credit?

1. The customer's character
2. The customer's capacity to pay
3. The customer's capital
4.The collateral provided by the customer
5. The condition of the customer’s business

Explain the credit decision and its probable payoff:

You have the choice to offer or refuse credit. If you refuse credit you guarantee no losses or profits (payoff=0). If you choose to accept credit you have the probabilty to make a profit if the customer pays (payoff= rev-cost) or to make a loss if the customer doesn't pay (payoff= - cost)