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Credit Policy Affects Cash Conversion Policy & Revenue

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Briefly review the effects of credit policy on cash conversion cycle and revenue. Explain what kind of factors you would use to manage these in your organization in this direction.

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Solution Summary

The solution describes the effects of credit policy upon cash conversion cycle and revenue and explains what factors managers use to manage these.

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A firm's credit policy will directly impact both cash conversion cycle and total revenue. If a company tweaks its credit policy to make it more difficult for customers to get credit (requires better bond ratings, credit ratings, or stronger references) or extends less credit (lower total account maximums) some customers will not be able to do business on a cash basis. As a result, that potential customer would be forced to find another vendor thereby directly lowering the firm's overall sales. However, if the firm extends credit loosely with high available credit limits, virtually anyone (even ...

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