Financial Risk Analysis Report: XYZ Company's India Sales

This report analyzes the financial risks associated with a company's sales to India, focusing on trade credit and payment terms. The report highlights the potential risks of offering 30-day payment terms, including delayed payments and the need for sales discounts to incentivize timely payments. It emphasizes the importance of regularly reviewing credit policies and managing accounts receivable to mitigate risks, such as bad debt and lost sales. The report suggests strategies like offering discounts, using collection agencies, and potentially selling bad debt to recover funds. It concludes with a recommendation against proceeding with the sale to avoid financial risks and protect the company's profitability. The report references academic research on trade credit and entrepreneurial finance to support its analysis.

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Global Business Environment

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Date: 1/4/2019
To: Mr. Ankit Jaiswal
From: The XYZ company
Subject: The financial risk that is related to immediate delivery
The company has been selling a piece of equipment to an individual in India however, the
payment will be due in 30 days time. It will be recommended to think twice before taking a
decision as the net amount for the sales transaction will be due for 30 days after the sales invoice
date. The company should avoid selling on a credit as that will delay the payment further from
the customers. It has also been found that if a company gets involved in a credit term of 30 days,
the money on average gets transferred after a span of 45 days after the invoice date. In order to
speed up the payment rate, it is imperative for the company to provide a discount to the customer
who will pay within a shorter time period. The discount that has been recommended is termed as
a sales discount or an early payment discount. The net 30 will allow a customer to initiate a
deduction of 2 percent of the net amount payable. The major financial risk that is related with the
selling of equipment to the individual in India is deduction of a certain percentage. In other
words, if a customer pays a company within 10 days of the invoice date, he or she has the right to
initiate a deduction of 10 percent (Giannetti, Burkart and Ellingsen, 2011). In order to protect
from the financial risks, it is imperative to review the credit policies that requires to be evaluated
on a monthly basis. This will help to reflect on the points thus stating that which customer will
pay on time as well as which customer will lag behind. It has been found that if a company has
been witnessing a longer outstanding of a receivable, the profitability would not be paid. This
will lead to losing out on some sales that leading to a loss. It is also recommended to eradicate
terms that will help to prevent the bill from being set aside. It is imperative for a company to
initiate a collection agency that will act as a unsavory reputation. It sometimes becomes requisite
to allocate a bad debt account to a collection agency in order to proceed with collections. If a
company sells a bad debt, it becomes liable to pay a small percentage of the debt face value that
helps to keep whatever is collected (Cuñat and Garcia-Appendini, 2012). It is recommended to
not go ahead with the sale as the company is not likely to receive the payment on time. This will
help the company to overcome the financial risks.

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References
Cuñat, V. and Garcia-Appendini, E., 2012. Trade credit and its role in entrepreneurial
finance. Oxford handbook of entrepreneurial finance, pp.526-557.
Giannetti, M., Burkart, M. and Ellingsen, T., 2011. What you sell is what you lend? Explaining
trade credit contracts. The Review of Financial Studies, 24(4), pp.1261-1298.