The major categories of costs associated with the extension of credit and accounts receivable are: (i) collection cost, (ii) capital cost, (iii) delinquency cost, and (iv) default cost.

Collection Cost

Collection costs are administrative incurred in collecting the receivables from the customers whom credit sales have been made. Included in this category of costs arc: (a) additional express on the creation and of a credit department staff, accounting records, stationery and other related items (h) expenses involved in acquiring credit information through outside agencies or by the staff of the firm These would not be incurred if till’ firm does not sell on it.

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