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The following articles are important for an understanding of how to make short-term financial decisions:

Sartoris, W. L., and N. C. Hill. "Evaluating Credit Policy Alternatives: A Present Value Framework." Journal of Financial Research 4 (Spring 1981), p. 1.

_"A Generalized Cash Flow Approach to Short-Term Financial Decisions." Journal of

Finance 38 (May 1983), p. 3. Our treatment of the credit decision owes much to:

Bierman, H., Jr., and W. H. Hausman. "The Credit Granting Decision." Management Science 16 (April 1970), and Mian, Shezad I., and Clifford W. Smith. "Extending Trade Credit and Financial Receivables." Journal of Applied Corporate Finance (Spring 1994). Three recent articles that establish a theoretical framework and some empirical work on trade credit:

Mian, S. I., and C. Smith. "Extending Trade Credit and Financing Receivables." Journal of

Applied Corporate Finance (Spring 1994). Long, M. S.; I. B. Malitz; and S. A. Ravid. "Trade Credit, Quality Guarantees, and Product

Marketability." Financial Management (Winter 1993). Lee, Y. W., and J. D. Stowe. "Product Risk, Asymmetric Introduction and Trade Credit." Journal of Financial and Quantitative Analysis (June 1993). An interesting normative article on how to establish trade credit limits is: Scherr, F. C. "Optimal Trade Credit Limits." Financial Management (Spring 1996).

Terms of the Sale

29.1 The North County Publishing Company has provided the following data:

Annual credit sales = $10 million Average collection period = 60 days Terms: Net 30 Interest rate = 10%

North County Publishing proposes to offer a discount policy of 2/10, net 30. It anticipates that 50 percent of its customers will take advantage of this new policy. As a result, the collection period will be reduced to 30 days. Should the North County Publishing Company offer the new credit terms?

29.2 The Webster's Company sells on credit terms of net 45. Its accounts are on average 45 days past due. If annual credit sales are $5 million, what is the company's balance in accounts receivable?

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Borrowing Basics

Borrowing Basics

Some small business persons cannot understand why a lending institution refused to lend them money. Others have no trouble getting funds, but they are surprised to find strings attached to their loans.

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