Why is it necessary for a business firm to establish a credit policy?

Question

Quizplus · Accepted Answer

A credit policy is necessary to determine the expected dates of payment from buyers of the firm's products and services. This helps financial managers to plan and manage cash flow effectively. A credit policy also sets guidelines for extending credit to customers, which helps to minimize the risk of bad debts and improves the overall creditworthiness of the business. A credit policy also helps to establish clear payment terms and ensures consistency in credit decisions.

Why Is It Necessary for a Business Firm to Establish