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Management Accounting Best Practices: A Guide for the Professional Accountant by Steven M. Bragg

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Chapter 3

Credit and Collection Decisions

The accountant is usually in charge of granting credit to customers, as well as collecting funds from them. These basic responsibilities give rise to a number of fundamental credit management questions, such as how to create a credit policy, where to obtain financial information about customers, how to create a credit granting system, and when to review existing credit levels. Once credit is granted, the accountant must then determine the best ways to create and deliver invoices in a manner that will be most likely to ensure payment, as well as develop a system for keeping track of overdue invoices and ongoing contacts with customers. Finally, it is necessary to collect on overdue invoices, which calls for the appropriate use of the sales staff in making collections, handling customer deductions, optimizing the use of the collections staff, and involving legal assistance when necessary.

This chapter provides answers to all of these key questions. The following table itemizes the section number in which the answers to each question can be found:

Section Decison
3-1 How do I create and maintain a credit policy?
3-2 When should I require a credit application?
3-3 How do I obtain financial information about customers?
3-4 How does a credit granting system work?
3-5 What payment terms should I offer customers?
3-6 When should I review customer credit levels?
3-7 How can I adjust the invoice content and layout to improve collections? ...

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