To establish an appropriate credit policy, the credit manager must examine the changes in the level of profit generated as a result of a relaxed credit policy and the extra investment in inventories and trade receivables.

Question

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A relaxed credit policy can lead to increased sales, thereby potentially increasing profits. However, it also requires a higher investment in inventories and trade receivables to support the increased sales volume. The credit manager must evaluate these changes to determine the optimal credit policy.

To Establish an Appropriate Credit Policy, the Credit Manager Must