Explore BrainMass

Explore BrainMass

    Credit Policy Key Factors

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    1. What are the four key factors in a firm's credit policy?How would an easy policy differ from a tight policy? Give examples how the four factors might differ between the two policies? How would the easy versus the tight policy affect sales? Profits?

    © BrainMass Inc. brainmass.com October 1, 2020, 7:50 pm ad1c9bdddf

    Solution Preview

    These are the questions involving the issue of credit management. Four factors of credit policy:

    1. The collection costs
    2. Investments in account receivable
    3. Level of Bad debts
    4. Level of Sales

    This is decision relating to terms of sale. Here one has to establish sensible credit limits. The job of the credit manager is not to minimize the number of bad debts but to maximize the profit. This means that one should increase the customer's credit limit as long as the probability of payment times the expected profit is greater than the ...

    Solution Summary

    The solution discusses the key factors driving a firm's credit policy.