What is credit policy? explain various elimenants of credit policy?
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MEANING
A company's policy on when its customers should pay for goods and services they have ordered a government's policy at a particular time on how easy of difficult it should be for people and businesses to borrow and how much it should cost. The government influences this through changes in interest rate.
FOLLOWING ARE ELEMENTS OF CREDIT POLICY:-
1} CASH DISCOUNT: Lowers price. Attracts new customers and reduces DSO.
2} CREDIT PERIOD: How long to pay? Shorter periods reduces DSO and average A/R, but it may discourage sales.
3} CREDIT STANDARD: Tighter standards tend to reduce sales, but reduces bad debt expenses. Fewer bad debts reduces DSO.
4} COLLECTION POLICY: How tough? Tougher policy will reduce DSO but may damage customer relationships
A company's policy on when its customers should pay for goods and services they have ordered a government's policy at a particular time on how easy of difficult it should be for people and businesses to borrow and how much it should cost. The government influences this through changes in interest rate.
FOLLOWING ARE ELEMENTS OF CREDIT POLICY:-
1} CASH DISCOUNT: Lowers price. Attracts new customers and reduces DSO.
2} CREDIT PERIOD: How long to pay? Shorter periods reduces DSO and average A/R, but it may discourage sales.
3} CREDIT STANDARD: Tighter standards tend to reduce sales, but reduces bad debt expenses. Fewer bad debts reduces DSO.
4} COLLECTION POLICY: How tough? Tougher policy will reduce DSO but may damage customer relationships
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Credit policy is a set of guidelines that ate used to determine which customers are extended credit and billed .
The four elements of credit policy are :-
♥ Character
♥ Collateral
♥ Capacity
♥ Capital
The four elements of credit policy are :-
♥ Character
♥ Collateral
♥ Capacity
♥ Capital
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