Assessing creditworthiness:

managing accounts receivablecollecting amounts owing;offering early settlement discounts:using factoring and invoice discounting;and managing foreign accounts receivable
reduce its exposure to the risks of bad debt and late payment by
assessing the creditworthiness of new customers In order to do thisthe company needs to review information from a range of sources.Theses ources include tradereferences bank references,credlit reference agencies and publishedaccountso help it toreview this information,Pangli Co might develop its own credit scoring process. After assessing the creditworthiness of new customers,Pangli Co can decide on how much credit to offer and on what terms.

Managing accounts receivable
Make sure that its credit customers abide by the terms of trade agreed when credit was granted following credit assessmentThe company wants its customers to settle their outstanding accounts on time and also to keep to their agreed credit limits. Key information here will be the number of overdue accounts and the degree of lateness of amounts outstanding. An aged receivables analysis can provide this information.
make sure that its credit customers are aware ofthe outstanding invoices on their accounts.The company will therefore remind them when payment is due and regularly send out statements of account. Collecting amounts owing
deally,credit customers will pay on time and there will be no need to chase late payers. There are many ways to make payment in the modern business world and must make sure that its credit customers are able to pay quickly and easiy. Ifan account becomes overdue, the company make sure it is followed up quickly.Creditcontrol staff must assess whether payment is likely to be forthcoming and if nota clear policy must be in place on further steps to take,These further steps might include legal action and using the services of a debt collection agency.

Offering early settlement discounts
Encourage its credit customers to settle outstanding amounts by offering an early settlement discountThis will offer a reduction in theoutstanding amount(the discount)in exchange for settlement before the due date.Forexample,if the credit
customer agreed to pay in full after 20 days, an early settlement discount might offer a 2% discount for settling after 25 days. the company must weigh the benefit of offering such an early settlement discount against the benefit expected to arise from its use by creditcustomers. One possible benefit might be areductionin theamountofinterest the
company pays on its overdraft. Another possible benefit might be matching or bettering the terms oftrade ofacompetitor.

Using factoring and invoice discounting
Pangli Co might use a factor to help manage its accounts receivable, either on a recourse or non-recoursebasis.The factor could offer assistance in credit assessmentmanaging accounts receivable and collecting amounts owina. For a feethe factor could advance a percentage of the face value of outstanding invoicesThe service offered by the factor would be tailored to the needs of the company

Managing foreignaccounts receivable
Foreign accounts receivable can engender increased risk of non-bayment by customers and can increase the value of outstanding receivables due to the longer time over which foreign accounts receivable are outstanding. the Co could reduce the risk of non payment by assessing creditworthiness,employing an export factortaking out export credit insurance, using documentary credits and enteringinto countertrade agreements. The company could reduce the amount of investment in foreign accounts receivable through using techniques such as advances against collections and negotiating or discounting bills ofexchange
Examining team’s note:Onlyfive techniques were required to be discussed.