|dc.description.abstract||This study is based on a domestic electronics company and 60% of its business transactions are credit sales. Therefore, it is extremely important for this firm to develop a rigorous and effective credit management mechanism. The main function of this credit mechanism is to confirm the amount of credit that can be provided to customers and the payment terms after shipment. The credit limit and payment terms provided to customers will affect this case company‘s accounts receivable balance and future cash flow scenarios.
The data source of this study is the financial-rating project of the case company in past years. The research method is the least- square-method OLS regression model and the Simple to General optimal model estimation. The explained variable is the accounts receivable, and the explanatory variables are the financial score items, including the cash ratio, the debt ratio and the current ratio. This paper discusses the accounts receivable, the relationship and significance of each financial scoring project, and find the best model estimates, further provide the case company a reference for issuing a credit score.
The empirical results show that the optimal model includes the inventory turnover days, pre-tax profitable annual growth rate, cash ratio, current ratio, debt ratio, quick ratio, pre-tax net interest rate and other explanatory variables. According to this model, the case company can re-examined its credit management mechanism, and adjust the financial score items and the their optimal weight according to the research results to strictly control the company′s overall credit limit, thereby reducing the company′s accounts receivable balance and credit risk.