Offering credit
2/10 n/30
2% discount if paid in 10 days, net bill (full amount)is due in 30 days if discount is not utilized
5 C's of credit
Character Capacity Capital Conditions Collatera
CWO cash with order
a cash payment covering the cost of merchandise and delivery is demanded at time of order
COD cash on delivery
an order is processed and shipped but the goods are only given after receiving full payment
CBD cash before delivery
an order is processed when it is received, however, it is only shipped when payment is received
disadvantages of offering credit
capital is tied up seller may need to add interest to cost of goods loss from bad debt may abuse return privileges increase in operating and overhead costs due to expense of bookkeeping, sending out statements and collecting payments m
open charge accounts
cust gets merhandise at time of purchase with payment due when billed department stores
truth in lending act
ensures customers are given terms of credit agreement requires creditors to show how finance charges are computed
creditor
extends consumer credit and imposes finance charges or enters into written agreements that call for payment in more than 4 installments
fair credit reporting act
given certain rights to credit applicants regarding reports written by credit bureaus (credit scores)
advantages of offering credit
increase in sales more personal relationships goodwill will buildup and easily maintained access to useful records containing customer information
revolving account (open ended credit)
line of credit that may be used over and over up to a certain borrowing limit major CC VISA etc
installment credit (closed ended credit)
requires down payment with balance paid over specific period of time in small payments cars, appliances usually 12-36 months
EOM end of month
the discount period and the due date start from the end of the month in which the sale occured
MOM middle of month
the discount period and the net due date are both counted from the middle of the month FOLLOWING the sales date