Working Capital Management

Working Capital Management (WMC)

Credit Analysis -2

Capacity is the ability of the customer to meet the obligations whenever they are due. In this regard it would be important for the company to see that the obligations are met through the funds generated from the operations of the customers. That would reflect the long term ability of the customer to meet the obligations. In case the customer is not in a position to meet his obligation out of operations in some abnormal year, the company should examine the capital base of the company. This would indicate the capability of the company to face the problems in case of some difficulty. The company should examine the net worth of the customer to access the capital base. Credit card debt assistance companies help company to examine net worth of individual customer.

 

The market conditions play an important role when one is doing credit analysis. The expected recessionary trends in the market, growing competition and other market factors should be taken into account when doing credit analysis of the customer. Given a particular set of conditions, the costs associated with extending the credit may some times be high. The cost may get reflected in high bad debt expenses or the default in payments. And finally, the company has to examine the kind of security, debt assistance, collateral in the form of assets, the customer is providing.

 

There will always be a problem in obtaining financial and qualitative information about the customers. This problem arises because there is no systematic source of information particularly about the small sized customers. It may not be possible for most of the companies to administer the collection of information about the customers. Company can take help of company who give assistance with credit cards. The cost in terms of time and money resources involved in such experience would outweigh the benefits. But at the same time the company has to come o conclusion and satisfy itself that the customer to whom it is extending credit is worthy of it and the risks involved commensurate with the return.

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August 1, 2008 - Posted by | Assets, Business Flow, Capital, Current Assets, Working Capital, Working Capital Management | , ,

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