Quantitative method of credit line - World Credit Organization

4.3 Quantification method of credit line

Credit sales quota includes (annual, quarterly, monthly) total credit sales quota, credit sales quota for a specific enterprise, and credit sales quota for a specific product. On September 1, 2008, the author formally proposed the C-value model and D-value model for calculating credit sales.

4.3.1 C value model method

1. C value model

Credit sales amount = last year's credit sales amount × (1+C)

In the formula, the C value is a variable, which is the increase ratio of the credit sales line. It is generally 20% to 30%, and generally cannot exceed 50%. It is determined and adjusted by the enterprise according to the actual situation, and it can also be related to the total sales. It is consistent with the planned growth rate, and can also be determined according to the annual growth rate of the same industry.

In the formula, the last year's credit sales, that is, the last year's accounts receivable, is calculated as: last year's sales - cash sales - cash discount and sales discount. Last year's credit sales can also be replaced by the average value of two or three consecutive years.

2. Assumptions for the application of the C value model

1. Assume that the identity of the applicant for credit sales is true and has good faith intentions;

2. Assume that the applicant for credit sales has no major financial crisis or bankruptcy risk.

Three, Theoretical Basis of C Value Model

Based on the following three reasons, the growth of credit sales is also limited, and units should consciously seek and control their own growth rate of credit sales.

1. For any unit, its four major resources of capital, talent, system and culture are limited, and cannot increase rapidly in a short period of time. Therefore, the development speed of the unit also has an inherent safety value. Excessive expansion will not only cause The decline in profits will also lead to the crisis of unit bankruptcy.

2. In the short term, the total amount of social demand for a certain product or service is limited, and the increment is also limited.

3. The marketing capabilities of the distributors are limited. Under normal circumstances, it is impossible to greatly increase the purchase volume of a certain product.

Fourth, the application of C value model

The C value model can be used to determine the total amount of credit sales of an enterprise (annual, quarterly, monthly), the amount of credit sales for a specific enterprise, and the amount of credit sales for a specific product.

1. Determine the total amount of the company's external credit sales

Xingzheng Company's annual credit sales in 2007 were 9.5 million yuan, 2 million in the first quarter, 3 million in the second quarter, 3 million in the third quarter, and 1.5 million in the fourth quarter. The total amount of credit sales of Xingzheng Company in 2008 is as follows:

2. Determine the credit limit for a certain company

Xingzheng Company's annual credit sales to Dazheng Company in 2007 were 950,000 yuan, 200,000 yuan in the first quarter, 300,000 yuan in the second quarter, 300,000 yuan in the third quarter, and 150,000 yuan in the fourth quarter.

3. Determine the credit limit for a certain product of a certain company

Xingzheng Company’s annual credit sales of scanners to Dazheng Company in 2007 was 95,000 yuan, 20,000 yuan in the first quarter, 30,000 yuan in the second quarter, 30,000 yuan in the third quarter, and 15,000 yuan in the fourth quarter.

4.3.2 D value model method

D value model is divided into calculation of D rate and D1, D2, D3 value.

One, D rate

or

2. Assumptions for the application of the D-value model

1. Assume that the identity of the applicant for credit sales is true and has good faith intentions;

2. Assuming that the applicant for credit sales has no major financial crisis or bankruptcy risk;

3. Assuming the same sales of different commodities in one unit, the cash consumed is the same.

3. The theoretical basis of D rate

1. The normal operation of the enterprise requires a certain amount of cash as a guarantee.

2. There is a certain internal proportional relationship between the sales scale of the enterprise and the cash required.

3. The D rate indicates how much cash guarantee the company needs for every one yuan of sales revenue. Since the cash balance of the previous period will be considered in the D value, the numerator of the D rate does not take into account the raw materials purchased on credit.

Fourth, D value

1. We use D1 to represent the safety value of the credit line

D1=Planned or estimated sales revenue × (1-D ratio)

The D1 value is called a safe value because the credit sales line can basically guarantee the company's demand for cash.

2. We use D2 to represent the risk value of the credit line

D2=Planned or estimated sales revenue × (1-D ratio) + initial balance of monetary assets (cash balance and bank deposit balance)

The D2 value is called the risk value because the cash flow brought by the current sales revenue has the risk of not being able to guarantee the cash demand, and it needs to make up the difference with the balance of monetary assets at the beginning of the period.

3. We use D3 to represent the limit value of the credit line

The D3 value is called the limit value because the cash flow brought by the current sales revenue and the balance of monetary assets at the beginning of the period cannot guarantee the cash demand, and other expected cash is needed to make up the difference, and the company has a large capital chain break risk.

V. Application of D value model

1. Determine the total amount of the enterprise's external credit sales

Xingzheng Company's annual sales in 2007 were 9.5 million yuan, sales cost 7.9 million yuan, financial expenses 100,000 yuan, sales expenses 500,000 yuan, management expenses 300,000 yuan, depreciation and amortization 200,000 yuan, credit sales limit in 2008 Calculated as:

If the balance of monetary funds at the beginning of March 2008 is 300,000 yuan, the Credit Management Department or the Finance Department expects that items other than sales revenue in March (such as: an account receivable received in November 2007) will be Bring new monetary assets of 100,000 yuan to the enterprise, then:

D2 value in March: 7.2+30=37.2

D3 value in March: 37.2+10=47.8

2. Analyze the risk of the unit's credit line

If the unit feels that the cash flow is tight, you can calculate the D value to see if the actual credit sales amount is higher than the D1 value. If it is higher than the D1 value, it means that the credit sales amount is too high.

3. Analyze the financial risks of partners

You can calculate the credit sales limit of the partner. If the credit sales limit of the partner is higher than its D2 value, if it is higher than the D2 value, you should be alert to the risk of breaking its capital chain.

4. Correct the results of the C value model

If you find that the C value model results are too far from the D value model results, you can use a lower limit. In the following cases, it is necessary to compare the results of C value and D value:

(1) The customer suddenly requests a substantial increase in credit sales;

(2) It is found that the customer has dishonest incidents.

The above content is excerpted from "Building an Integrity Unit - ICE8000 Integrity Management" (written by Fang Bangjian, free to use, but please indicate the source)