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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.

Receivables:

The term receivable is defined as the amount which is due to the corporation from the purchase of commodities and services by the customers on credit. It also includes notes receivables and the loans given to customers or third parties.

Answer and Explanation:

The variables that affect a company's investment in receivables are in the nature of a commodity or service, the number of sales, collection policies, and credit policies. For example - The variation in the credit policy leads to a change in the number of sales. If the credit policy is liberal, customers will take a longer duration to pay, which leads to an increase in the receivables. For early payments, cash discounts are given to the customers which lead to a decrease in the receivables. Cash discount attracts customers, which lead to an increase in the sales volume and a reduction in bad debts.


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Credit Policy & Receivables

from Finance 101: Principles of Finance

Chapter 19 / Lesson 1
3.6K

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