In the models of both Kyle (1985) and Grossman and Stiglitz (1980), the equilibrium auction pricing rule is uniform in the sense that it generates a single price at which all orders are executed; in Glosten and Milgrom (1985) each order is executed at a different price, which is determined by the conditional expectation rule; however, the customer pays the same marginal price for each unit in the same order. One of the peculiarities of the LOB, by contrast, is that an order can be satisfied at different prices, as limit sell (buy) orders can be executed at or above (below) their limit price. It follows that within an LOB each market order or marketable limit order larger than the quantity available at the inside spread can be filled at different prices, by absorbing the liquidity available at the best bid offer and then walking up (or down) the book. Because buy (sell) orders can be executed at increasing (decreasing) limit prices, when a liquidity supplier posts his price and quantity he will take into account that his price can be picked up not only by traders willing to trade the quantity he offers, as in Glosten and Milgrom, but also by agents willing to submit larger orders. Hence, if the order size is a proxy for the private information held by the customer submitting the order, the liquidity supplier will quote a price that is higher than the one he would post in a bilateral transaction as in Glosten and Milgrom.
Category Archives: due ammounts
Trade Discounts Can Add Up!
One of the untapped income sources for many companies is the trade discount offered for prompt payments. Many suppliers offer anywhere from a one percent to three percent discount if the invoice is paid within 10 days, as opposed the usual net 30 days and beyond. Use the following equation to predict your trade discount:
discount income = discount percent / (due date – discount date) x 360
Let’s assume our example company that receives a two percent discount on payments made within 10 days, rather than by the 45-day average established through weighted average invoice aging. That discount equation would be as follows:
2% / (45 – 10) x 360 = 20.5%
Unless the company’s cost of funds or interest earnings match or exceed 20.5 percent, the company gains more financial value if it pays within the trade discount period.
Many companies curry favor with suppliers by paying either prior to the due date or as an exception to their own weighted average. A company that does this should make sure the vendors know the company is making a policy exception and, if appropriate, why it’s doing so. If the company chooses to reward vendors with cash for some reason, the vendors should know why.
Managing Disbursement: Where the Accounts Payable System Earns Its Keep – part 1
The purpose of ACCOUNTS PAYABLE is to keep track of your company’s payables in an orderly fashion. But the advantage is that it enables a company to manage cash disbursement, allowing better control of cash flow and maximizing the value of funds to the organization.
As a rule of thumb, vendors meeting a company’s most critical needs—whether it’s raw materials or the retail items that are most popular or allow the highest markup—are paid first. Others follow as funds become available.
Sometimes cash flow is controlled out of necessity. There may be a snag in production or a liquidity problem that will require withholding or reducing some payments until the crisis is over. If that happens, the situation should be explained calmly and honestly to vendors. Chances are they’ve all been there and understand.
They will most probably want an estimated payment date. That’s where the ACCOUNTS PAYABLE system comes in handy.
What are the Advantages of Automated Accounts Payable
Many companies have added automated A/13 files to their general ledger systems. Most systems automatically track and report payables and provide summaries of amounts owed each vendor.
All in all, life becomes much easier with an automated system—providing the accounting department:
- Sets up vendor files properly.
- Sets up the A/1′ subledger to default to the general ledger.
- Establishes default files that categorize and track specific types of amounts owed and payments due.
The automated system includes the same types of information listed in the manual file, such as date of transaction, name of vendor, description of purchase, amount owed, and terms of payment. Using that data, the automated system will send the necessary information to the A/1′ subledger, which then batches all payables by entry date and balances the batch to the general ledger account.
How is the information categorized on Accounts Payable
- No matter how subledger files are arranged, the ACCOUNTS PAYABLE subledger summary must neatly organize, categorize, and summarize all accounts for posting to the ACCOUNTS PAYABLE line of the general ledger. The most common method in manual systems is a column-ruled sheet of paper that lists the following information for summarization:
- Date. When the purchase was made or the debt incurred.
- Vendor. To whom the money is owed.
- Purchase description. What was purchased or how the debt was incurred.
- Amount. How much money is owed.
- Expense or assets accounts. The general ledger accounts to which the purchase or debt is posted.
- Cash. Whether or not this was a cash transaction.
- Accounts payable. Whether or not this was a credit transaction to be posted to this account.
In addition to serving as a transaction summary, this A/1′ subledger summary page also is a source document for posting to the general ledger, which is generally done monthly.
Most accounts payable systems link with inven¬tory control. That way, when a shipment of materials arrives and is logged in, the warehouse entry appears immediately on the ACCOUNTS PAYABLE subledger and general ledger from which payment to that particular vendor is to be made. Again, double entries—and the occasional resulting errors—are avoided.
guidelines your collection staff should follow when dealing with debtors – part 2
Help the debtor solve problems associated with the delinquency. If the company alters its expectations a little, a debtor inconvenienced by a minor setback in personal fortunes may be able to pay more quickly and easily. Sometimes a debtor can feel overwhelmed, like it’s impossible to pay off the debts. Companies that work with the debtor help make the dunning effort a service of sorts that may help resolve matters for the company and the debtor.
Guidelines your collection staff should follow when dealing with debtors – part 1
Reach an agreement with the debtor on the amount owed. One of the key things the collections person can do is help the debtor overcome his or her internal resistance. With the exception of a disputed amount, most debtors know they must pay and, more often than not, most want to pay. Getting them to verbally acknowledge their debt—recording what they said and when— may put the company ahead of another of that customer’s creditors. The more a company can work with a debtor, the more likely it is that the company will see its money.
Maximizing Your Collections Efforts – part 2
The accounting function can help, too, by sending timely accurate statements to customers to remind them of the debt they owe the company. The old phrase, “Out of sight, out of mind,” was never truer than when it comes to debts.
For companies that simply must launch a collections action, a collections professional is always the preferred route. Whether it’s a staff person specially trained at collecting past due amounts or a firm hired for this specific purpose, the money recovered should be worth the time and effort they spend. But make sure not to leave a bad impression with customers you may eventually want back.
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