Introduction to Case problem and important points to be covered
The core problem for Allen Distribution Company is how to distinguish from the marginal accounts the difference between good creditors and bad creditors. Especially we show how the difference between creditors can be utilized in practice by the credit representatives. For this we provide clear guidelines. The option of extending the Morse Photo Company’s $ 1000 credit line is used as test case for these purposes.
To distinguish customers we divide the accounts to different categories. There are two important points of views which in our opinion should be used to asses different accounts and prospective credit lines. Research process tracks following steps:
The accounts are examined simultaneously from both perspectives: 1. Significance and potentiality of a customer I. Size II. Growth III. Loyalty * Possible profits
2. Financial situation and expected return of a customer IV. Examination of key figures V. Analyzing possibility of default VI. Scenario analysis and future outlook * Probabilities of profit
Each account is considered as an individual project. Especially selecting the marginal credit applications is under review since the marginal accounts make the difference between profit and loss, as it is stated in the case material. Determining standardized evaluative procedures is essential since this way the credit department’s effectiveness will be improved. However, we will show how the profits are maximized rather than how the credit losses are minimized. Furthermore, the main requirement, which each project should meet, is the parent company’s expectation of 20% return before taxes.
Case Morse Photo Company: Importance as a customer
From our point of view Morse is not