1. Revenues and Receivables
Objective:  Understand receivables and their relationship to value.
Why grant credit?
Increase in sales—trade-off of the margin on increased sales less expenses on all credit sales.
Service to customers.
Build relationship with customers—develop new markets.

2. Revenues and Receivables
What are the costs of granting credit?
Deferred cash flow—present value, interest –perhaps 10% on balance
Bad debts expense—less than 1% to more than 10%.
Increase in risks of doing business.
Pay income taxes on the receivable.
Factoring—sale of receivables with or without recourse 8% - 20%

3. Estimating Uncollectible Accounts
Allowance method required for financial report
Aging of ending accounts—conceptually best
Percentage of sales—easiest to do.
Direct method required for income taxes

4. Management of Returns and Allowances
R & A Costly
Most are not customer's fault, but design or delivery of product/service—NON-VALUE
Indicates external failure--serious profit loss.
Paperwork and return activities.
Lost future sales.
Reduces profit before tax
Opportunities to find out about customers.