Question

Credit Policy of a firm should involve a trade-off between increased:

• A. Sales and Increased Profit
• B. Profit and Increased Costs of Receivables
• C. Sales and Cost of goods sold
• D. None of the above

Answer 1

The correct option is B Profit and Increased Costs of Receivables

Allowing credit to customer carries a cost to the company i.e. cost of interest of carrying debtors.Hence firm need to make a trade off between the profits generated through credit sales and the cost of receivables.