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A company's investment in receivables is affected by several related variables. Give an example...

Question:

A company's investment in receivables is affected by several related variables. Give an example of this interrelationship. Please explain thoroughly.

Receivables:

The term receivables is defined as the amount of debt owed to the corporations by its customers for the purchase of commodities and services. Receivables are listed at the time of purchase made by its customers.

Answer and Explanation:

A company's investment in receivables is affected by several related variables like credit policies, amount of sale, collection policies, nature of the service or commodity sold. For example, due to the variations in the credit policy leads to the change in the sale. The corporation with liberal policies allows the customer to pay after a long duration and also provide cash discounts with the motive of early payment which leads to the downfall in the amount of receivables as the customer would purchase the commodities and services in cash. They also provide trade-off to its customers depending upon the collection policies of the corporations. As a result of the cash discount, the sale volume increases, accelerate the payment from the customers which leads to the reduction in the value of receivables held by the corporations


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Credit Policy & Receivables

from Finance 101: Principles of Finance

Chapter 19 / Lesson 1
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