From the course: Finance for Non-Financial Managers (2015)
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Managing receivables and inventory
From the course: Finance for Non-Financial Managers (2015)
Managing receivables and inventory
- Okay, we just talked about cash management. Now, let's talk about receivables management. Recall that receivables are the amounts of money owed to us by customers. We want to manage our receivables to ensure that they turn into cash. But let's ask the question, why would anybody have receivables in the first place? Why not just sell for cash? Well, it turns out credit sales are a marketing technique. It turns out if we will offer credit, we will get more sales. If I'm offering you a product and you have to pay cash here and my competitor down the road is allowing you to pay in 30 days for the same product, you'll go down there, all of the things being equal. Now, if credit sales increase sales, why not offer credit to everyone? Well, it turns out if you offer credit to anyone and everyone, there will be a lot of people who won't pay you. You'll have bad debts associated with that and so it's a trade off. I'll…
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