Suppose a firm changes its credit policy from 2/10 net 30 to 3/10 net 30.The change is meant to meet competition, so no increase in sales is expected.The average accounts receivable balance will probably decline as a result of this change.

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The change in credit policy is offering customers a smaller discount (2% to 3%) for paying early, which is not expected to increase sales. Therefore, customers are unlikely to take advantage of the new discount and pay early. As a result, the average accounts receivable balance will likely decline as customers pay later than before, which is beneficial for cash flow management.

Suppose a Firm Changes Its Credit Policy from 2/10 Net