9.19 Altering Credit Policy
The liberalization of the firm’s credit terms should only be done for financial reasons, i.e., if it increases (gross) profits more than ensuing costs. The effect of liberalization is that, first, sales should increase (with gross profits ensuing), but so too will bad debts and opportunity costs.
For every action there is an opposite (and not necessarily exactly offsetting) reaction. In all such decisions, management must consider the competition.
What if the firm tightens its credit policies? Here we go!
| Good Effect | Bad Effect | |
| Raise credit Standards |
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| Decrease Net Due Period |
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| Decrease Discount |
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| Decrease Discount Period |
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