Question

Which of the following is not a cost linked with maintaining receivables?

• A. Cost of funds
• B. Discount costs
• C. Collection costs
• D. Default costs
• E. None of the above

Answer 1

The correct option is B Discount costs

Firms generally offer cash discounts to induce prompt payments. Credit terms reflect the percentage of discount and the period during which it is available. Cash discount helps to reduce the costs of maintaining receivables. Thus discount cost does not constitute cost of maintaining receivables.