Opis
This book explores an important but often neglected aspect of a firm's finances: trade credit management (TCM). When firms offering credit to each other so purchases can be made on open account it is a vital source of business-to-business credit flows. Trade credit is the life-blood of competitive economies. Trade credit involves taking calculated credit risks. In return, selling firms boost sales and profitability. Buying firms get access to credit. But trade credit has to be carefully managed. To generate cash, accounts receivable need to be collected. In the meantime, working capital must be managed so that cash flow is sufficient to pay the firm's bills. The price of error is financial distress and even bankruptcy. The book explores the topic from many angles and is anchored in the hard realities of Poland's marketplace. Particular attention is paid to the dynamics of trade credit in small to medium enterprises, firms which often have special needs. The focus of this book is threefold: • the analysis of the role of TCM from inside and outside of the firm; • a detailed investigation of best practice in TCM collection processes; • the presentation of issues concerning working capital management. Spis treściAUTHORS' FOREWARD 9PART I: Big Picture OverviewLOOKING INSIDE THE FIRM 27I. The Accounts Receivable Investment 27Why Carry Accounts receivable? 27Measuring the Receivables Investment 28Trade Credit and Elasticity of Demand 31What Does Offering Trade Credit Cost? 34II. The Perennial Finance-Sales Tension 40III. The Psychological Dimension of TCM 42Easily Overlooked 42Leaning on the Trade 42Collection Games 43The Role of Confidence in Patience 44LOOKING OUTSIDE THE FIRM 47IV. Macro-economic Conditions 47Business Failure: Bad Debts 47How Much Risk Is Out There? Bankruptcy Patterns in Poland 48Bad Debts as a Cost of Business 50The Credit Cycle 51Industry Patterns in TCM 53V. Institutional Infrastructure 54Legal Status of Unsecured Trade Debt 56Access to Bank Credit 61Trust and Business Confidence 67Credit Information Infrastructure 69Credit Bureau-Generated Credit Scores 100Polish Market 107PART II: The TCM Collections CycleOVERVIEW OF THE TCM COLLECTIONS CYCLE 119I. Formulating A Credit Policy 121Strategic context 121Terms of sales: Liberal or Tight? 132II. Information Gathering 136Information Appetite 136Customer Files 138Establishing Identity 139Guarding Against the Possibility of Fraud 140Information Sources 157Trade References 159The Economics of Search Costs 163III. Credit Risk Assessment 165The Five Cs in Action 173Setting Credit Limits 195Credit Scoring 199IV. Monitoring & Collection 212Collection Steps 212V. Dealing With Default 226Dunning 228PART III: Financial Management IssuesI. Liquidity Management 271TCM & Liquidity Management 271Arranging bank credit 276Accounts Payable Management 303Cash Management 314II. Overtrading 318III. Risk Transference 324Bank Letter of Credit (L/C) 324Domestic Credit Insurance 327Factoring 345APPENDIX ASome Suggested TCM Reforms 375APPENDIX BUseful Websites 377APPENDIX CGlossary of Trade Credit Management Terms 379REFERENCES 419