Open AccessTrade Credit Decision Making Based on Portfolio Management Approach
Author(s) -
Grzegorz Michalski
Publication year - 2007
Publication title -
ekonomika
Language(s) - English
Resource type - Journals
eISSN - 2424-6166
pISSN - 1392-1258
DOI - 10.15388/ekon.2007.17634
Subject(s) - postponement , accounts receivable , profit maximization , working capital , maximization , portfolio , application portfolio management , current asset , business , enterprise value , financial management , factoring , finance , microeconomics , profit (economics) , economics , project portfolio management , actuarial science , marketing , project management , management
The basic financial purpose of an enterprise is maximization of its value. Trade credit management should also contribute to realization of this fundamental aim. 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 related to purchasers using payment postponement for goods and I 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.