Increasing the length of the credit period should increase sales, but both the investment in accounts receivable and bad debt expenses are likely to increase as well.

Question

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Increasing the length of credit period would mean customers have more time to pay for their purchases, which could encourage them to buy more. However, this also means that the company would need to invest in accounts receivable (money owed to them by customers) for a longer period of time. Additionally, the longer customers have to pay, the higher the risk of some customers not paying at all, leading to an increase in bad debt expenses.

Increasing the Length of the Credit Period Should Increase Sales