If easing a firm's credit policy lengthens the collection period and results in a worsening of the aging schedule then why do firms take such actions?
A) It normally stimulates sales.
B) To meet competitive pressures.
C) To increase the firm's deferral period for payables.
D) All of the above.
E) Both a and b above.

Question

Quizplus · Accepted Answer

Easing a firm's credit policy typically allows customers to purchase more goods on credit, which often stimulates sales. This can help the firm meet competitive pressures and increase its market share. However, this also usually results in a longer collection period and a worse aging schedule, meaning that the firm will have a higher risk of bad debt losses and cash flow problems. Ultimately, the decision to ease credit policies requires a balance between the benefits of increased sales and the risks of extending credit to customers who may not be able to pay.

If Easing a Firm's Credit Policy Lengthens the Collection Period