. What are the components of a firm’s credit policy, and why are they important?

Expert Solution

There are four elements of firm's credit policies. they are as follows-

A. Credit period- it determines the period at which the firm is open to provide the credit along with certain terms and condition.

B . Discount- it determines the level of discount the firm is is open to provide. it could be either cash discount or trade discount according to the convenience of the firm.

C. Credit standards- it determines the overall criteria to be fulfilled by different debtors in order to receive credit from the firm.

D. Collection period- it is the period at which the collections of different debts are made so it needs to be very reasonable in order to maximize the profit.

Credit policies of a firm are very important in order to maintain consistency in its operation as well as enhancing the level of its profits.A firm's credit policies greatly determines the sales volumesvolumes and the profitability associated with overall sales.

jeff jeffy answered 1 year ago

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