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Trade Credit Arises When a Firm Sells its products or services on credit and does not
receive the cash immediately. It is an essential marketing tool, acting as a bridge for the
movement of goods through production and distribution stages to customers. A firm grants
trade to protect its sales from the competitors and to attack the potential customers to buy its
products at favorable terms. Trade credit creates accounts receivable or trade debtors. The
customers from whom receivable or trade debtors. The customers from whom receivable or
book debits have to be collected in future are called trade debtors or simply as debtors, who
constitute a substantial portion of current assets of several firms. A credit sale has three
In order to have the receivables in effective manner the firm should have an effective
credit policy.p
The term credit policy refers to combination of three decision variables, credit
standards, credit terms and collection efforts. In practice the Indian companies grant credit for
several other reasons such as the company position, buyer's status and requirement dealer
additional sales. Additional sales should add to the firms operating profit. There are three
costs involved:p
3. Bad-debt losses.p
The firm's operating profit is maximizes when total cost is minimized for a given level of
revenue. Optimum credit policy is one which maximizes the firm's value. The value of the firm
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ëpppppTo study and analyze how effectively the debtor's and debt are being managed in Salem
of the company.p
ëpppppTo do a comparative analysis between the year 2003 to 2007 regarding and increase in
ëpppppTo do a trend analysis between the 2002 to 2007 regarding the payable to the increase
The study highlights on the various aspects like company's ability to get back their loans
at agreed duration and installment, the company's ability to retrieve their money from the
defaulter or any compensation for the same and legal actions taken against default customers.
The study says about the various credit proposals applied to the company are bound to repay it
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Research methodology is a way to systematically solve the research problem. It shows all
the details of data which have been used for the research and procedures which have been
The method adopted for the study is historical research. It is based on the study of past
and current records of existing delinquent customers to analyze the default status of their
account and its significance in order to draw a conclusion. The research is descriptive in
nature as the study was done on the existing data. The research design used in this study is
descriptive research design. A descriptive study is undertaken in order to study and analyze
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It was got from the published annual reports and database of the company for the
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Ratio analysis is one of the popular tools of financial statement analysis. A ratio can be
It's a mathematical yardstick that measures the relationship between the two financial
figures. Experts have identified ratios as significant and improvement too, since they through
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3. Ratio analysis gives only the relationship between different variable and the actual
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