Formulation & Development / Review of

No-Non sense Credit and Collection

Policies and Procedures

CHAPTER II
 Prepare your work outside and
make it ready for yourself in the
field; afterwards build your
house.
(proverbs24;27)
The must always be plans to guide the conduct of business
in marketing, manufacturing, accounting, treasury, credit and
collection functions and other vital management operating
unit of a company.

The reality, however, the majority of business have not

deliberately develop credit and collection policies and
procedures. If there is such a system, the policies and
procedures used only evolved and developed after years of
operation. This inordinate reliance and experience and not on
fundamentals aggravated by inexperience, is risky and costly.
 Developing and Implementing no-nonsense credit
and collection policies and procedures must be based on
sound basic principles and guidelines of credit and
collection management.
The company should ask itself and which must
answer in developing its own credit and collection
system or policies are:

1. Who shall initiate the system? The owner or the

stockholders, directors or officers?
2. Is the credit function a finance/treasury function or
a marketing/sales function?
3. What is the policys philosophy or rationale
4. Should credit policies and procedures be liberal or
consecutive?
 5. Is the system you have in mind is suited to the industry
to which you belong?
6. What products and services do you sell, and how should
you sell these on credit?
7. What market share do you want to attain?
8. What is the perspective status of the industry/business
to which you belong?
9. Are the political ,social and economic environments
conducive to the business you are in?
10. What kind of competition do you have?
11. Do you have the competent, experienced personnel to
develop, implement and enforce the policies and procedures
OBJECTIVES OF ESTABLISHING CREDIT
POLICIES

1. To minimize sales;
2. To minimized costs and bad debts losses;
3. To attain profit or income objectives;
4. For Control and evaluation
Factors to Consider in Formulating Credit and
Collection Policies

1. Capital Up to what extent can the capital of the company

services support the receivables?

2. Competition Up to what extent or period of payment does

the competition give to the market?

3. Product or Services Does your product or services lead or

lag in its market? Does your product or services give you
sufficient market leverages against you competitions?

4. Kind of customers or target market The class of

customers (or the market for your product or services whether
belonging to the high, middle or low income group will do a
large extent influence the collection policies in you will adopt.
Credit Policies of Credit and Collection

Depending and the factors affecting your product or service

you can either have:

1. Liberal credit policy complimented by strict collection policy

2. Strict credit policy complemented by liberal collection policy
3. Liberal credit policy with a liberal collection policy
4. Strict credit policy complemented by strict collection policy
Factors Dictating of Liberal Credit Policy

1. High overhead cost necessitates high volume to prevent

losses;
2. High advertising and promotion expenses;
3. Demand products service is temporary due to fad nature of
you product(s)/services(s);
4. When opening new accounts;
5. Developing a market for new product/service;
6. If you are in a very competitive market;
7. A declining market for you product/services;
8. Heavy, Normal, Obsolete inventory.
9. The selling season of your product/service is ending and
not financially strong to carry your inventory to the next year.
Factors of Dictating Restrictive Credit Policy

1. Having extend or leveraged financial condition;

2. There is more demand for your product/service that your
ability to produce or serve;
3. The inventory is low and not in a position to build up
inventory expeditiously to meet the demand;
4. The general economic condition is unfavorable;
5. Business condition among your customers are slumping
badly;
6. Producing product is according to customers specification
which you cannot sell to others;
 The credit policies you devised must be flexible.
Conditions can change quickly in your company and in
your market; and, the credit policies that are just right
at the present may be too liberal or too restrictive
tomorrow.

Your sales, credit, and collection records showing

relationship between total sales and credit sales may
be the standing point to amend your credit policies to
adjust to the prevailing conditions.

The possible two pronged solutions are; first, to be liberal

credit extension; then, active promotion in credit sales.
THE CREDIT AND COLLECTION OPERATION

- A CUTTING EDGE
a sale is never a sale, unless collected

Accounts receivable are what provide cash to

companies. In this direction the credit and collection
department must manage and control the accounts receivable
though no non-sense credit and collection policies provide
timely, accurate information to the marketing, sales operation
on the volume and quality of the accounts receivable.
 One the most important tasks the credit and collection
department has to decide is whether or not to offer or extend
credit to customers. This decision to a large extent, must be
provided by solution policies, procedures on matter of:

> How will you sell?

For cash, to offer credit and extend credit through a credit
party?
> Under what credit term and condition?
> By what standards would you evaluate the prospective
customers
> Will the prospective customer will meet your standards?
> What procedures will you follow and enforce to collect from
the customer who fails to pay according to the terms?
> A non-nonsensically developed, formulated policies,
procedures must provide the answers to the foregoing
questions.
> It must be borne in mind, that competitive factors play an
important role in the promulgation of credit policies.
> Credit terms sharpens competitive tool;
Companies in the same industries tend to have similar credit
terms. Among the credit terms offered the customers are:

1. Open Account Customers with very good credit qualities

enjoy this kind of a term.
2. Installment Term The amount of sales plus the interest
are paid on installments generally used by durable customers.
3. Revolving Credit Terms Its similar to credit type of
account. A specific peso amount is set over which the
customer may not change goods. A specified minimum amount
of payment each month is set to paid.
For as long as the minimum monthly payments are made and
the account is not over charged, the customer may buy your
products. Monthly interest is charged for any outstanding
balance.
4. Seasonal Billing Payment is need near the end of
buyers selling season. Seasonal balance are appropriate for
this kind of credit item
5. Consignment goods are shipped to the buyer with no
obligation to pay until the goods had been sold or used.

Title and ownership over the goods remains with the seller until
they are sold.

Per B.I.R Revenue regulation goods consigned more than 90 days

with the consignee are deemed sales, for which reason
corresponding tax thereon must be paid, unless there is proof to
the contrary

The alternative is to renew the consignment arrangement every

70 to 80 days.

The risk of loss in the goods consigned remains with the

consignor. However, damaged to the goods consigned is the
obligation of consignee, who is obliged to care with goods with
this diligence of a good father of a family. In this regard, proper
insurance coverage must be taken by the consignor to cover this
consignment loss.
Purposes of Credit Limits:

Represent an estimated ceiling that represent the

judgment of the creditor as to the amount of credit which
may be extended safely to the credit applicant or debtor.

It is the amount proposed by the analysis of the elements and

basis of credit to be in relative proportion to the credit applicants
needed, capability and capacity to pay within the credit term
extended. It is arrived at from the viewpoint of the creditor and
debtor. It serves to improve the granting of establishment of
credit, in particular transaction for credit promotion and collection.

Sharing the credit limit information within the sales operation

will result to a more effective sales marketing positive symbiosis,
thus avoiding sales efforts and expense in getting order in excess
of the customers limit which in the end will be rejected.
 Contribute to s cost effective cooperation between credit and
sales operations within the business organization.

Credit limit works also as a guide in the promotion of sound

credit operation, not withstanding the fact that, credit limits are
restrictive by nature. It opens the opportunity for repeated
customers business as they proved themselves capable and worthy
of more credit extensions.

Advantages of Setting Credit Limits

It is the overall tool for the control of credit extension, promotion

of sound credit practices and, the effective collection of the
accounts.

It prevents misunderstanding and confusion within the sales

operations and with the customers, minimize wasted sales efforts,
provide some degree of discretion for automatic control over the
accounts receivable
 It aids in reducing the cost credit and collection operations and
contributes to efficiency.

Credit limits works as a check against imprudent, reckless

buying of customers and abate extravagance.

Objectives to Credit Limits

There are reasons advanced by setting credit limits its

objectionable.

1. Difficult to set up and keep current;

2. Unless keep credit limit is of little value;
3. Facts and figures are difficult to gather form different
resources;
4. Necessitate readjustment every time an order causes an excess
in the limits set;
5. May precipitate losing rapport with the customers due to
frequent discussion of his credit limit;
 The foregoing apparent objectives are far from reality
because credit limits are not permanent amounts but estimate
only of ones capacity to repay for credit secured.

Its not necessary to adjust the limit often at short

intervals nor necessary to reject an order due to a slight
increase in the credit limit set.

Credit limit do not exactly reflect the actual capacity

of the debtor to repay his credit. They are generally set
us guideposts, warning as to debtors or customers
relative capacity to pay.
Why Set Credit Limits

Whether or not to grant credit is based on three intertwined

decisions namely;

1. To extend credits;
2. On what terms and conditions shall credit be granted;
3. Setting or determining a limit to the amount of credit to be
extended under the specified terms and conditions.

Credit limits are essential, because credit is a

motivation to an active and profitable sales activity. It is
inherent in the institution of credit as leverage in its
administration and control.
Factors Necessary to Arrive at a Credit Limit

Generally, its the same factor in arriving at a decision to

grant credit. Bias must be given to customers past and
present paying performance; and, the prevailing business,
economic condition in conjunction with a study of the
customers particular line of business and the type of the
business organization which must be correlated with credit
and collection policies of the creditor.
It must be remembered that, it is not the ultimate
payment of the account that is of importance, but the
willingness and capability to pay the credit within the credit
term extended that is more important. Necessarily, the past,
the present as well the future willingness and capability of the
customers vis--vis potential conditions are more significant
than those which actually exist.
 Finally, the creditor must give due attention to the
customers requirement and keep al credit extensions within
those limits; otherwise, credit so obtained maybe diverted or
used for other credit obligations of the customer-debtor; or,
for some other business needs unrelated with the business
the creditor has extended credit to.

Credit Limit Allocation

Prudence dictates that credit limits must be allocated

judiciously and equitable to different target markets.
The factors to observe in credit allocation are:

1. Keeping tap of creditors allocation of credit to its different

market sector, market and industries;
2. Rational extension of credit terms to different debtors;
3. Judicious, timely monitoring of credit danger signals on
high credits availors;
4. Effective, timely limits monitoring.

Basic for Setting Credit Limits

1.The customers debtors positive debt paying capacity or

ability to pay. In short, whether or not the credit can be paid
on time within the credit term and what amount, is the
financial approach of setting credit limit.
2. The positive needs and requirements of the customers-
debtors of the merchandise/service of the seller-creditor, is
the sales approach to setting credit limit.

It can not be said for certain that these two approaches shall
be used distinctly separate from each other.

It is best to use these two methods in computing for the

credit limits for the customers-debtors because of the needs
and requirements of the customers-debtor may not be
supported by the debt paying capacity of the customer of the
vice-versa.
Ways to Determine Credit Limits

1.Credit limit granted arbitrarily;

a. Following the credit limit granted to credit applicant by

other creditors or competitors within ones industry;
b. The trial and error method.
c. Based on the average amount of the highest credit
granted by others in the same line of business;

2.Credit limit based on the debt paying capacity of the debtor

Computed on the tangible net worth or the next working

capital of the credit applicant; the limit is computed by dividing
tangible net worth by the number of principal creditors or
suppliers which may be obtained by the creditors own
experience with similar types of business.
It is assumed that the net worth fairly measure the debtors
debt paying capability, particularly when the assets consist
mostly of fixed assets and little current assets. It must be
noted that fixed assets in the net worth are not readily
available for payment of current indebtedness in a going
concern operations. Such limit is not related to any period for
which credit is to be extended.

3. Another ways of setting credit limit is assigning a limit

either as fixed amount on certain credit rating bracket as
ascertain is a credit scorecard; or. As a percentage of a capital
rating done by reputable, credible rating company. When this
latter method is used the procedure adopted is to allow a
credit limit equivalent to a certain percentage of the capital
rating figure of a credit rating company.
The method has similar weakness as in the method based on
tangible net worth.

The are too much reliance on rating, regardless of the fact that
rating change frequently and are estimates only based on the
degree of judgment of the rating company which must jibe
with judgment of the individual credit manager who is on the
account.

4. Other methods in computing credit limits is the net working

capital method (current assets minus current liability) or net
assets. Net current assets is divided by the customers
principal suppliers/creditors. The presumption under this
method is that the net current assets measures the debtors
ability to pay within the credit term or period; and, that he is
granted credit or buys from the creditors of sellers used as
divisors.
5. Credit Limit Based on Customers/Debtors Requirement

A. The salesmans indicated probable need, requirement of the

customer;
B. Asking the customer when applying for credit to state how
much he requires from the seller/creditor;
C. Credit set on temporal basis without specification as to
amount; such as week or month credit which may with
experience be changed to some other period of time. This is
mostly used in sale of credit for perishable goods;
D. Determination of the customers/debtors total requirement
for the year which is estimated for the cost of goods sold to be
sold during the period. Dividing this figure into the normal rate
of turnover will result to the average requirements when
divided by the number of principal suppliers/ a credit limit is
obtained.
Its a fairly reliable method as long as seller have similar
product or service mix and their credit extensions are
generally similar.

Suggested Method of Computing Credit Limits Based on

Customers Requiremnets

It must be avoided to allow the customer debtor of indirectly

fixing his credit limit.

The steps to compute for a customers needs and requirement

is as follow;

1. Determine the customers yearly volume of business;

2. Determine what percentage of his business is in your
company;
3. Determine what proportion of customers business you can
obtain (say for example, that out of P1,200.00 annual
business, you may be able to get 50% or P600,000 of such
business);
4. How many days of sale will you grant the customer a credit
of 45 days credit term. The credit limit is computed by dividing
45 days into 360 days and dividing the result into amount to be
extended during the year thus;

(360/45=8; P600,000/8= P75,000 credit limit)

5. Reduce the credit limit thus determine by the average gross

margin of profit on which buyer normally sell your product say,
at 30% margin, and you will get approximately P52,500 in
credit line.

Annual sales x percentage in sellers line x percentage in

sellers line, seller expect to obtain x cost of good sold, as
percentage of sale divided by average turnover of sellers
accounts receivable
 = Credit limit substituting the figures in the foregoing
illustration, the results are as follows;

( P2,000.00 x 60% x 50% x 70% / 8=P52,500 credit

line )

Another way to compute a customers requirements is to

ascertain the cost of goods sold during the year obtain from
the latest financial statement, which may regarded as annual
merchandise requirements, divided by he customary credit
period; to obtain the amount that would be required during
such time; then, the amount is divided bye the number of the
suppliers to arrive at the credit limit to be set by each of the
suppliers. If the cost of good sold is P180,000 for the year, and
the general credit term is 60 days the amount needed for such
period is P30,000.00 worth of goods or credit. This amount is
divided by say 15 suppliers, will result to a credit limit of
P2,000.00 each computed to wit.
 Terms in days x cost of goods
(60 x 180.000 (15) )=(2000.00)

Days in year (360) x no. of suppliers = credit limit

Credit Limit Computed on Customers Paying Capacity

Steps to compute the credit limit:

1. Ascertain the estimated revenue of the customers debtor

from all sources because from this shall come payments for
his debts;
The expected sales of customer-debtor for the debtor
inclusive of the goods (service) to be sold on credit, must be
estimated; this is however difficult to ascertain and the
immediate past sales figures maybe relied upon.
2. From the sales in #1 deduct customers gross margin, for
operating expenses. The balance after deduction of the cost of
good sold, from which all creditors must be paid from;

3. Estimate all the accounts and notes payable appearing on

the customers financial report as claims against the funds
available for paying creditors;

The money claims for the period are determined by multiplying

the total of the accounts and notes payable to creditors by the
rate of turnover of obligations. The rate maybe computed from
the financial reports of customers-debtors paying practices;
such as those given by credit bureaus or by the salesmen. It is
arrived at by dividing 360 days by the average length of time
taken by the customer-debtor in paying debts

The product of the payables and the turnover rate represents

the estimated claims of creditors against the customers-
debtors income for the year.
4. The portion of the earnings available to pay a new creditor,
on the assumption that customer-debtor did not replace old
creditors is the difference between the total of cost of
goods sold (step 2) and the obligations to present creditors
(step 3). The balance represents the total which a new
creditor may expect to sell to the customer in a years time.

5.The credit limit for any given period is dependent upon the
length of time that the creditor maintain the customer-
debtor in his list of market

The total annual sales that the creditor may hope to make to
the customer-debtor are divided by the turnover rate which
he expect to make to the particular customer-debtor.
For illustration assume that the creditors regular credit term is
30 days, but on the average said term extends to 60 days, one For
ass
sixth 1/6 (360/60) of a years sales to the customer may be the
reg
allowed to be outstanding (delinquent) at any given time. This ter
day

represents the customers credit limit a buttress by his ability the

said

to pay.
ext
day
sixt
(36
yea
the
ma

The entire procedure may be arrived at by the following allo

out
(de
formula; at a
tim
rep
cus

Expected Sales x % of sales represented by cost of goods sold, cre

but

Sellers Turn over of Receivables less AP & NP x Rate of

his
pay

Turnover = Credit Limit

Illustrative Problem:
Expected sales---------------------------
P1,200,000.00
Gross marginal sales ------------------ 20%(Sales)
Cost of expected sales to
P1,200,00 x 80% ------------------------
P96,000.00
Accounts & Notes Payables --------- P600,000.00
Rate of Turnover (Payment)
of AP&NP --------------------------------- 30 days
Therefore, the customer =-debtor pay
monthly his creditors (360/30)
Thus, the total claims of other creditors on
customers-debtors annual earnings,
exclusive of his operating expenses of

P60,000.00 x 12 = P720,000.00
The amount of P720,000.00 shall be
deducted from the cost of good to be sold
gives

P960,000.00 P720,000.00 =
P240,000.00

The new credit sales the creditor-seller may

expect to sell to the customer-debtor.
However, due to the creditors practice of
extending his average 30 days term to 60
days, the expected collection from the
customer-debtor is six (6) times, thus a
credit limit of P40,000 is assigned for the
customer-debtor.
P1,200,000 x 80 (P60,000 x 12) =
P40,000
6 -Credit limit
It is therefore of necessity that granting credit based on
customers-debtors needs and requirements must always be
tied with the paying capacity and capability of the customer-
debtor

Selling Small Credit Limits

Assigning Credit Limits on Retail Charge Account

A) Request the credit applicant to indicate on the credit

application, the minimum, medium and maximum credit limit
he wants;
Cont. Selling Small Credit Limits

Assigning Credit Limits on Retail Charge

Account

b) Credit limit computed from credit bureaus

report or from other creditors of credit
applicant. Take the average amount of the
credit applicants other
Cont. Selling Small Credit Limits

Assigning Credit Limits on Retail Charge

Account

d) Credit limit based on time; i.e. daily,

weekly, semi-monthly, or monthly, etc., in
some instances allowing for some grace or
extension period.
Cont. Selling Small Credit Limits

Assigning Credit Limits on Retail Charge Account

A 30 day charge account for an amount computed at a certain
percentage of customers-debtors monthly salary like;
- P1,500 for those with monthly salary of P6000 to P7,500;
- P2,500 for those with monthly salary of P7,500 to P10,000
- And P4000 to P5,000 credit limit for those with monthly
salary of P10,000 or over
Credit limit for installment or deferred payment debtors, the
following factors must be taken into the computation of the
credit limit and term.
Credit limit must be set for durable goods buyer to prevent
the customer from buying imprudently; and, to avoid
unreasonable bad debt losses. In this direction the
installment buyers capacity to pay is of primary importance
to determine.
To determine the capacity to pay of the credit applicant all his
obligations on installments must be determined and the sum
total of such obligations must not be more than 12%-15% of
the customers monthly income for an installment period of
12-24 months; vis--vis the price, durability, reliability of the
goods bought on installment; and, installment buyers
earning capacity and security. This may be improved by
deducting 10%-15% of monthly income referred to above or
1% for each dependent. More over the resale value of the
good of product bought as weel as the depreciation factors
must be taken into the computation of the credit limit.
 Credit limit for revolving credit vary with the paying
capacity of the debtor and the length of time over which
the credit revolves

Credit limit from lending institutions for borrower is

essentially the same except that, in a bank and financing
companies their credit investigation, documentation
process is more rigid and stricter

OTHER GUIDES IN SETTING UP CREDIT LIMITS:

1. NORMAL REQUIREMENT
Based principally on the customers financial responsibility
and payment performance in relation with his need.
Under this method, emphasis is on the purchasing
patterns, rather than the payment performance,
implicitly assuming that payment for normal
purchases will be made within the term granted
NORMAL REQUIREMENT
The term normal requirement must be fully
explained, experienced and understood from the
customers performance; so that, substantial and
financially sound customers can e sold on credit
under this term
2. CREDIT LIMIT BASED ON SIZE OF ORDER:
Credit lines are generally established in relation with
the total balance outstanding or the total amount
of order placed within a given period. Under some
circumstances however, a credit line based on the
amount of the individual order may be desirable,
allowing automatic approval of any order less than
the specified amount.
2.CREDIT LIMIT BASED ON SIZE OF ORDER:
Larger orders particularly useful in a decentralized credit
organization where I is impractical for order-processing
points to keep complete records on receivables. The
thinking behind it is similar to that underlying blanket
approval of small orders that the amount of risk does
not justify the cost of investigation.
3. CREDIT LIMIT BASED ON OUTSTANDING
BALANCE:
Lines intended to bring about referral of orders when
the total outstanding balance exceeds the line, require
complete records of unpaid invoices and/or orders
approved but not yet shipped. Such lines are ordinarily
used when the customers position is such that a
normal requirement line cannot be supported.
3. CREDIT LIMIT BASED ON OUTSTANDING
BALANCE:
To minimize the referral of orders, the peso credit line
should be as close as to the customers actual needs and as
consistent with credit policy and available credit
information.
4. CREDIT LIMIT FOR A SPECIFIED TIME PERIOD:
A credit line may also be based on the total
amount ordered which can be approved
during a given period of time.
Credit lines stated in this way are particularly useful in
companies which process orders at a number of locations
but maintain more centralized accounts receivable. Lines
for a specific time period provide control with a minimum of
referral to a central office of record keeping at the order-
processing point.

In assigning even prompt payment for all invoices billed

during the designated period would not necessarily be
received on time during that period, the total credit
exposure will often be larger than the amount of the line.
Adequate controls must be established to prevent
extension of further credit to delequent accounts.
Credit Period or Term for mercantile
(Commercial) Credit

Mercantile or commercial credit refer to the credit extended

to the sellers and buyer of goods and services for resale, in
the same modified or for use in the
Legal Requirements of Consignment
Contract

Merchandise on consignment must be

segregated from other inventory or clearly
labeled as belonging to the seller
Proceeds from the sale of consigned goods
awaiting remittance to the consignor must
be segregated from the consignees regular
funds, preferably in a separate bank
account or in trust
Insurance coverage must be provided by
the seller
Reports of sales and inventory remaining
on hand, as well as remittance must be
made at specified intervals
Cash Discounts

Motivated by fear that unstabe economic

condition would affect the sellers ability to
collect before the credit term or it may
serve as an incentive for debtor to pay in
advance
Cash Discount
(viewpoint of the seller)
Premium which the seller is willing to pay
for certain benefits that accompany
prompt collection of this funds. The
premium paid by the seller when the
discount is earned, but by the buyer when
he is unable to pay within the discount
period.
Cost of Credit terms that must be given
proper consideration

Administrative cost in running the

department
Cost of financing the accounts receivable
Credit losses due to delinquent or bad
accounts
Cost of Offering Credit
Credit Evaluation Cost
Discounts in Payment
Investment in Receivables
Collection Expenses
Bad Debt Expense

Credit Period/Term
The arrangements between buyer and seller
which specify the conditions required in
payment for goods or services are known
as terms of sale.
1. Rate of turnover of the goods or
services, is the period of time from the
purchased of the goods on credit and its
conversion to receivable or cash is called
turnover period.

2. Location of Customers and

Transportation Facilities.
3. Term of Sale Granted by Other Seller

4. Competitive Strategy

5. Character of Merchandise

6. Quantity Involved
7. Classes of Customers

8. Nature of the Credit Risk

9. Sectoral Differences In Income Level

10. The Biases/Prejudices of the Credit

Manager
11. Prompt Payment/ Rebate or Cash Discount
Its advantages are;
a.) Faster recovery of the money induced by
the prompt payment discount which give the
reinvestment of the money in the business for
further or increase business for the creditor;
b.) Reduces credit and moral risks as well as
bad debtor/losses;
c.) Reduced collection cost;

d.) Promotes and maintain goodwill

between creditor for friction
Terms of Payment as Part of the Sales
Transaction

Also referred to as credit term or payment term

Theterm discussed in this chapter are primarily

those employed in the recurring sale of
merchandise as it moves form basic producers
through the channels of distribution
Elements of Term of Payment

1. The credit period also referred to as the

net credit period, is the length of time
allowed the buyer before payment is
due.

2. Cash discount is the deduction from

the invoice amount allowed the customer
for payment within a specified time prior
to the expiration of the net credit period.
3. The Cash discount period is the time
within which payment by the purchaser
entitles him to deduct the cash discount.

4. The credit Instrument is the record or

evidence of the buyers payment
obligation.
Agreement on Term of Payment

Terms of payment is the integral part of

each sales contract, and like the price,
requires agreement by both buyer and
seller.
Standard Term of Payment

Thedegree of uniformity in the terms of

sales vary widely among different
Industries.
Factors Influencing Term of Payment

Inmost industries, each company uses a

variety of stated terms, which serve as
guides to credit personnel in transactions
with individual accounts.
Competitive Aspects of Terms of
Payment

1. buyers marketing or turnover;

2. Competitive and other circumstances of

buyers and sellers
Buyers Marketing Periods

Marketing Periods or terms, are longer or

shorter largely because of wide differences
in the products marked by various
industries.

Perishability
Seasonal
Demand
Consumer Acceptance
Costs
 Raw Materials
Circumstances of Buyers and Sellers
Competition
Location of Buyer
Type of Customer
Quantity Purchased
Profitability
Payment Terms

Cashwith order (C.W.O) or Cash in

Advance (C.I.A)

Cash Before Delivery (C.B.D)

Cash on Delivery (C.O.D)

Proximo term
Special Dating Payment Terms

Seasonal Dating