Note—The Bierman-Hausman Credit Granting Model: A Note

Abstract

To date, the Bierman-Hausman (Bierman, H., Jr., W. H. Hausman. 1970. The credit granting decision. Management Sci. 16 B519–B532.) model remains the most rigorous normative effort in credit granting. This note points out that the procedure suggested by Bierman and Hausman for considering the time value effect is valid only under the extremely unrealistic assumption of a firm being able to simultaneously collect its receivables and make payments to its suppliers. A simple modification is presented to incorporate more realistic cash flow timing assumptions.