Increasing a credit period from 30 to 60 days, in response to a similar action taken by company's competitors, would likely result in:
A) An increase in the average collection period.
B) A decrease in bad debt losses.
C) An increase in sales.
D) Higher profits.

Question

Quizplus · Accepted Answer

Increasing the credit period means customers will have more time to pay their bills, which can result in a longer average collection period (the time it takes to collect payments from customers). This can also increase the risk of bad debt losses if customers are unable to pay within the extended period. There may be an increase in sales due to the more flexible credit terms, but this alone may not lead to higher profits if bad debt losses increase.

Increasing a Credit Period from 30 to 60 Days, in Response