Relaxation of credit policy normally involves an expansion of investment in accounts receivable.

Question

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When a company relaxes its credit policy, it means that it is allowing its customers more time to pay for their purchases. This results in an increase in accounts receivable, as more customers will have outstanding balances. Therefore, an expansion of investment in accounts receivable is a common result of relaxing credit policies.

Relaxation of Credit Policy Normally Involves an Expansion of Investment