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Assume that after a review of Accounts Receivable, management determines that the credit department has not...

Assume that after a review of Accounts Receivable, management determines that the credit department has not been enforcing credit terms. What can management do to encourage customers to pay faster? What might be some of the negative consequences of such a change? Some points you could have raised include:  Management can charge interest to customers who don’t pay within 30 days or refuse to extend credit to those who pay late.  Management could off a discount to early payers.  Possible implication is a reduction in sales.  Need to consider what competition are doing.

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Answer #1

Management can charge interest to customers who don’t pay within 30 days or refuse to extend credit to those who pay late- the impact this policy is increasing the collection, as well as a decrease in sales, the dissatisfied customer may leave from our business and they are looking for new supplier at new favorable terms.

Management could off a discount to early payers.-Impact of this policy may increase in collection and improve the sales volume also.

A possible implication is a reduction in sales. - this alternative never improves the collection and after effect of this policy is to decrease sales as well as profitability.

As per my suggestion first or the second method can apply depending upon the customer and quantity of the business and implementation of policies correctly.

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