Determining the optimal credit policy is based on a trade-off of:
A)carrying costs of granting credit and making an investment in receivables.
B)stock out costs of losing sales from not offering credit.
C)the opportunity cost of lost sales from not offering credit.
D)Both A and C.
E)Both B and C.

Question

Quizplus · Accepted Answer

The optimal credit policy requires a trade-off between carrying costs associated with granting credit and making an investment in receivables and the opportunity cost of lost sales from not offering credit. By choosing a credit policy that balances these trade-offs, a company can minimize the overall cost of providing credit to its customers. It is also important to consider the creditworthiness of customers, the length of the credit period, and the discount offered for early payment when determining the optimal credit policy.

Determining the Optimal Credit Policy Is Based on a Trade-Off