Principles of Finance Chapter 10

Line of credit

A limit to the amount of credit extended to an account. Purchaser can buy on credit up to that limit

Cash discount

A percent reduction in sales or purchase price allowed for early payment of invoices. It is an incentive for credit customers to pay invoices in a timely fashion

Credit scoring system

A system used to decide whether to grant credit by assigning numerical scores to various characteristics related to credit worthiness

Accounts receivable

Amount of money owed to a firm by customers who have bought goods or services on credit. A current asset, the accounts receivable account is also called receivables

Just-in-time (JIT)

An approach to inventory management and control in which inventories are acquired and inserted in production at the exact times they are needed

B2B Exchange

Business-to-business Internet marketplace that matches supply and demand by real-time auction bidding

Business-to-business (B2B)

Communications and transactions conducted between businesses, as opposed to between businesses and end customers. Expressed in alphanumeric form, it refers to such transactions conducted over the Internet

Lead time

The length of time between the placement of an order for an inventory item and when the item is received in inventory

Credit standard

The minimum quality of credit worthiness of a credit applicant that is acceptable to the firm

Cash discount period

The period of time during which a cash discount can be taken for early payment

Economic order quantity (EOQ)

The quantity of an inventory item to order so that total inventory costs are minimized over the firm's planning period

Order point

The quantity to which inventory must fall in order to signal that an order must be placed to replenish an time

Credit period

The total length of time over which credit is extended to a customer to pay a bill

Seasonal dating

Credit terms that encourage the buyer of seasonal products to take delivery before the peak sales period and to defer payment until after the peak sales period

Safety stock

Inventory stock held in reserve as a cushion against uncertain demand (or usage) and replenishment lead time

Supply chain management (SCM)

Managing the process of moving goods, services, and information from suppliers to end customers

ABC method of inventory control

Method that controls expensive inventory items more closely than less expensive items