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Dun M Braóetreet

Copyright 2001, Dun & Bradstreet, Inc. All rights reserved. Reprinted with permission.

Ross et al.: Fundamentals of Corporate Finance, Sixth Edition, Alternate Edition

VII. Short-Term Financial Planning and Management

21. Credit and Inventory Management

© The McGraw-Hill Companies, 2002

CHAPTER 21 Credit and Inventory Management

To see just how important timely collection of receivables is to investors, consider the case of Art Technology Group (ATG), a company that provides Internet customer relationship management and e-commerce software. In late 2000, ATG announced an unusual sale of accounts receivable to a bank. The sale helped lower ATG's reported September days' sales outstanding, an important indicator of receivables management. However, after this information became public, investors became concerned about the quality of the firm's sales, and ATG's stock sank 18 percent.

The aging schedule is a second basic tool for monitoring receivables. To prepare one, the credit department classifies accounts by age.3 Suppose a firm has $100,000 in receivables. Some of these accounts are only a few days old, but others have been outstanding for quite some time. The following is an example of an aging schedule.

aging schedule

A compilation of accounts receivable by the age of each account.

Aging Schedule

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