Receivables
You'll learn how credit sales work and why businesses offer them to customers, along with how to calculate the financial cost of extending credit terms.
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In this lesson
- 0:00 Why businesses offer credit to customers
- 1:09 Understanding the cost of funding receivables
- 3:20 Cost of capital and overdraft rates explained
- 4:04 Clark Kerr case study: evaluating credit terms
- 6:28 Calculating working capital funding costs
- 8:32 Bloom Limited: reducing collection period savings
- 10:46 Alternative methods for calculating interest savings
About this lesson
This lesson covers the concept of cost of capital in the context of receivables, showing you how to evaluate whether offering credit is worthwhile by comparing increased sales against the cost of funding those outstanding debts. You'll work through practical examples using contribution margins and overdraft rates to determine if credit policies make financial sense. This is essential knowledge for FM, PM, and AFM papers where working capital management and credit decisions directly impact profitability and cash flow.
Duration: 12m
Transcript
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