Question:

What type of accounts receivable control should he use?

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Jim just left a rather unpleasant meeting with his banker, Harold Holmes of First Virginia National Bank. Jim ad banked with First Virginia for almost 30 years and his father, who had established his business in 1934, had only banked with First Virginia. Holmes, however, had just nformed Jim that the bank would not extend their line of credit any further. In addition, the over due note payable for $130,000 must be paid within 30 days. Jim could not believe that Holmes had the temerity to tell him he needed to drastically reduce the store’s inventory and to strongly suggest an inventory reduction sale. Since its founding, Reed has only held the industry’s traditional semiannual sales—in January and July. Although Jim was piqued by this young banker’s demand, the note was over 45 days past due, and Jim did not know how he could make any more than a token payment on the note within the next 30 days.

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  1. Without the other detail from you textbook, I'll say:

    A.  Offer discount terms such as 1% 10, net 30.

    B.  Factor some of the A/R. Sell it to a third party for a discount in order to get the money now.

    C.  Tighten credit standards so that he is not making sales to anyone overdue.

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