Gnome, Inc. institutes a policy of selling on credit for the first time in the firm's history. Gnome finds, much to its dismay, that it must pay to produce the merchandise but it now experiences a delay in collection of revenues. Gnome's problem describes the ____________ factor of credit policy effects.

Question

Quizplus · Accepted Answer

The problem described is related to the cost factor of credit policy effects. When a company sells on credit, it incurs the cost of producing and delivering the merchandise before receiving payment, leading to a cash flow gap. This is a direct cost associated with extending credit to customers.