If easing a firm's credit policy lengthens the collection period and results in a worsening of the aging schedule,then why might a firm take this action?
A)to slow down an unsustainable growth in sales
B)to meet competitive pressures
C)to increase the payments deferral period
D)to shorten the cash collection cycle

Question

Quizplus · Accepted Answer

A firm may ease its credit policy to meet competitive pressures and attract more customers. This can potentially increase sales in the short run, but it may result in a longer collection period and a worsening of the aging schedule. However, the firm may accept this consequence in exchange for gaining a larger market share or maintaining competitiveness. Other options, such as slowing down unsustainable growth or shortening the cash collection cycle, are not likely outcomes of easing a credit policy. Increasing the payments deferral period could also lead to a longer collection period and a worsening of the aging schedule.

If Easing a Firm's Credit Policy Lengthens the Collection Period