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Short term debt risks/credit policy

Discuss the rationale behind a liberal credit policy and its effect on sales and accounts receivable and the advantages and disadvantages of using short term debt.

How would you use short term debt with respect to inventory management, accruals and accounts payable?

What would the use of short term debt have on your capital structure and why?

What are the risks associated with short term debt and why?

Solution Preview

Please find help and some guidelines for short term debt risks and credit policy in the content given below. The content below has been written to get you started on this assignment. This has been written to help you with this particular problem and its use is limited as such. The content of the solution must not therefore be passed on as your own work for grading or commercial purposes. You can also use the listed resources to explore your topic further.

Rationale of Liberal Credit Policy and Its Effects
Liberal credit policy refers to the principle of selling on credit to customers on liberal terms and standards. In this policy, the credit is generated for longer period to those customers, who have credit worthiness and also maintain the strong financial position. In this credit policy, the bed debts are increasing on the firm and the firm is unable to collect the debts. It is because in this policy, firm sells to such customers, who have relatively less credit standing in the market. The liberal credit policy also affects the sales of the firm. If the company has more liberal credit policy, it will attract more customers that increase the sales of company (Moyer, ...

Solution Summary

Short term debt risks and credit policy is examined in the solution. The rationale behind a liberal credit policy is determined.