4. IQRA EDUCATION NETWORK AND CONSULTANTS:
 IQRA EDUCATION NETWORK AND CONSULTANTS:

 FREELANCE ACCOUNTING AND AUDIT SERVICES

 FOR SMALL & MEDIUM BUSINESSES, CO-OPERATIVE SOCIETIES, NGOs ETC.
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 A/C RECEIVABLES AND PAYABLE,
 PREPARATION OF FINAL ACCOUNTS.

 CONTACT:

 KHALID AZIZ

 0322*3385752

 KARACHI.

 **************************************************

5. IQRA EDUCATION NETWORK
AND CONSULTANTS:
 COACHING CLASSES FOR COMMERCE STUDENTS:
 INTER COMMERCE
 1ST YEAR 2ND YEAR
 ACCOUNTING
 BUSINESS MATHS , STATISTICS
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 B.COM
 PART 1 ACCOUNTING, ECONOMICS & STATISTICS .
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 O / A LEVELS
 ACCOUNTS, ECONOMICS, BUSINESS STUDIES, PAKISTAN STUDIES & URDU.
 ICMAP SEMESTER 1,2,3,4
 PIPFA
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 ACCA F1,F2,F3,F5,F8,P1,P7
 MA-ECONOMICS
 100 % RESULT IN 2012-13
 KHALID AZIZ
 0322-3385752
 R1173, ALNOOR SOCIETY, BLOCK 19, POWER HOUSE, F.B.AREA, KARACHI.
 **************************************************

6. IQRA EDUCATION NETWORK
AND CONSULTANTS:
 GRAB THE GOLDEN OPPORTUNITY TO MARKET YOUR BUSINESS IN A MOST
EFFICIENT WAY BY POSTING YOUR ADS ON BLOGS, SOCIAL MEDIA AND POWER
POINT PRESENTATIONS ON DAILY BASIS. FOR FURTHER PLEASE FEEL FREE TO
CONTACT.

 KHALID AZIZ

 0322-3385752

 ONLY SERIOUS PERSONS MAY CONTACT. NO SMS PLEASE.
 ***************************************************
 IQRA EDUCATION NETWORK provides you the most qualified and experienced tutors
for home tuitions from Primary to Masters level. For further information feel free to
contact:
Khalid Aziz
0322-3385752
Kaziz_cma@yahoo.com
 ****************************************************

7. TABLE OF CONTENTS
Terms of payment
Credit policy variables
Credit evaluation
Credit granting decision
Control of accounts receivable
Credit management in India

8. TERMS OF PAYMENTS
Cash Terms
Open Account
Credit Period
Cash Discount
Billing

9. TERMS OF PAYMENTS
Consignment
Bill of Exchange
Letter of Credit

10. Credit Policy Variables
Credit Standards
Credit Period
Cash Discount
Collection Effort

11. Credit Standards
∆RI = [∆S (1 – V) - ∆S bn] (1 – t) -k ∆I
Where
∆RI = Change in residual income
∆S = increase in sales
V = ratio of variables costs to sales
bn = bad debt loss ratio on new sales
t = corporate tax rate
k = post tax cost of capital
∆t = increase in receivables investment.

12. Credit Period
∆S *ACP * V
360
∆S/360 = average daily change (increase) in
sales. The divisor here can with equal
justification be 365, rather than 360
ACP = average collection perid

13. Cash Discount
∆RI = [∆S (1 – V) - ∆DIS] (1 – t) + k∆I
Where
∆S = Increase in sales
V = ratio of variable cost to sales
k = cost of capital
∆I = savings in receivables investment
∆DIS = increase in discount cost

14. Collection Effort
∆RI = [∆S (1 – V) - ∆BD] (1 – t) + k∆I
Where
∆RI = Change in residual income
∆S = Increase in sales
V = ratio of variable cost to sales
∆BD = increase in bad debt cost
t = tax rate
k = cost of capital
∆I = savings in investment in receivables

15. Credit Evaluation
Type I Error : A good customer misclassified as a
poor credit risk.
Type II Error: A bad customer misclassified as a
good credit risk.

16. TRADITIONAL CREDIT ANALYSIS
“Five C’s of credit”
Charcter
Capacity
Capital
Collateral
Condition
Sources of informations about five c
Financial statement
Bank references
Experiences of firm

17. Numerical Credit Scoring
 Identify factors relevant for credit evaluation
 Assign weights to these factors
 Rate the customer on various factors using suitable rating scale.
 Multiply weights with the rating scale.
 Add all score to get consumer rating index
 Based rating index classify customer
Factor Facto
r
Weigh
t
Rating Factor
Score
Past Payment 0.30 4 1.20
Net Profit
Margin
0.20 4 0.80
Rating
Index
2.00

18. Discriminant Analysis
This technique is employed to construct better
risk index.
e.g. ABC company manufacture some product for
industrial customer, they take two financial ratio
into consideration, namely return on Equity and
Current ratio.
Current
Ratio
Return on Equity
+ +
+ +
+ +
+ +
O
OO
O
O
O
O
O
+

19. CREDIT GRANTING DECISIONP=Probability that customer pays his dues
1-P=The Probability that Customer can not
Pays his dues.
Revenue=Revenue from sale
Cost =Cost of good sold

20. Formula
P(Rev-cost)-(1-P)Cost
Example
ABC company is considering offering credit to a
customer.the probability that customer would pay
is 0.8 and the probability that customer would
default is 0.2.The revenue from sale would be Rs
1200 and cost would be Rs.800
Sol:- 0.8(1200-800)-0.2(800) = 160

21. REPEAT ORDER
FORMULA
{ P1(Rev1-cost1)-(1-P1)Cost1 }
+
P1{ P2(Rev2-cost2)-(1-P2)Cost2 }
SOLUTION
{0.9(2000-1500)-0.1(1500)}
+
0.9{0.95(2000-1500)-0.05(1500)= 660

22. CONTROL OF ACCOUNTS RECEIVABLES
Two methods for that
 Days’ sales outstanding
 Ageing schedule

23. Days’ sales OutstandingMonth Sales Receivables
January 150 400
February 156 360
March 158 320
April 190 310
May 170 300
June 180 320

24. DSO= Account receivable
Average daily sales
Quarter
First 320 = 62 days
(150+156+158)/90
Second 320 = 54 days
(190+170+180)/91

25. Ageing ScheduleIn days Receivables
0-30 35%
31-60 40%
61-90 20%
>90 5%

26. Collection of Matrix
January February March
Collection
Of
payment
13 20 24
Whether the Collection is improving stable or reduced .

27. CREDIT MANAGEMENT IN INDIA
Credit Policy
Credit Analysis
Control of Receivables
Room for Improvement