Credit Terms are the terms mentioned on the invoice at the time of buying goods from the seller on the credit. In other words, the credit terms provokes the customer for the early payment in order to accelerate the flow of inbound cash. Copy the link given below and paste it in new browser window to get more information on Credit Terms:- http://www.transtutors.com/homework-help/accounting/merchandising-operations-credit-terms/

2. CREDIT TERMS
• Mentioned on the invoice at the time of buying goods
• It is a contract between the buyer and seller about the timings
and payment to be made for the goods bought in the future

3. AMOUNT OF CREDIT TO BE EXTENDED TO
A CUSTOMER
• The total amount of credit to be extended to a borrower by a
lender is known as credit exposure.
• The vastness of the credit exposure tells us about the extent to
which a lender is exposed to the risk loss in case of borrower’s
default.
• For example, if a bank has made a short term and long term
loans of worth $400 million to company XYZ, then its credit
exposure to a company XYZ is $400 million.

4. PAYMENT TIME PERIOD
Payment Time
Period
Average
Collection
Period
Accounts
Receivable
Turnover

5. EARLY PAYMENT DISCOUNT TERMS
• An early payment discount is offered by some companies in
order to encourage credit customers to pay sooner.
• The early payment discount also known as prompt payment
discount or cash discount.

6. PENALTY IN CASE OF LATE PAYMENT
• The rate of the penalties is driven by the country’s inflation
and interest rate. Every country follows the different policies.
• The late penalties must be shown in the sales conditions, in
the business contract and in the invoices.

7. ACCOUNTING FOR CREDIT TERMS
Date Particulars Debit (Dr.) Credit (Cr.)
1 Oct 2016 Cash for the amount received (Dr.) xxxx
Sale discounts for the amount of early payment
discount (Dr.)
xxxx
Accounts receivable for the full amount of credit sale or
invoice (Cr.)
xxxx

8. CREDIT ANALYSIS
• Credit analysis is a method through which the credit
worthiness of a business or organization can be calculated.
• The main objective of the credit analysis is see whether both
the borrowing and the lending facility being proposed and to
assign risk rating.

9. FIVE C’S OF CREDIT
Character Capacity Capital
Collateral Conditions

10. HEY FRIEND,
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