Acta Oeconomica Pragensia 2008, 16(5):47-56 | DOI: 10.18267/j.aop.161

Determinants of Accounts Receivable Level: Portfolio Approach in Firm's Trade Credit Policy

Grzegorz Michalski
Dr Grzegorz Michalski, Assistant Professor, Department of Corporate Finance and Value Management, Wroclaw University of Economics, Wroclaw, Poland, ul. Komandorska 118/120, p. Z- 2, KFPiZW; PL53-345 Wroc³aw, Poland, tel. 0048713680747, fax 0048717181717, Grzegorz.Michalski@ae.wroc.pl; http://michalskig.com/.

Trade credit management should contribute to realization of basic financial purpose of an enterprise which is the is maximization of its value. Many of the current asset management models that are found in financial management literature assume book profit maximization as the basic financial purpose. These book profit-based models could be lacking in what relates to maximization of enterprise value. The enterprise value maximization strategy is executed with a focus on risk and uncertainty. This article presents the consequences that can result from operating risk that is related to purchasers using payment postponement for goods and/or services. The present article offers a method that uses portfolio management theory to determine the level of accounts receivable in a firm. An increase in the level of accounts receivables in a firm increases both the net working capital and the costs of holding and managing accounts receivables.

Keywords: accounts receivable, trade credit management, incremental analysis, value based management, portfolio analysis
JEL classification: G32, P33, P34

Published: August 1, 2008  Show citation

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Michalski, G. (2008). Determinants of Accounts Receivable Level: Portfolio Approach in Firm's Trade Credit Policy. Acta Oeconomica Pragensia, 16(5), 47-56. doi: 10.18267/j.aop.161
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