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Benefits

A part from the costs, another factor that has a bearing on accounts receivable management is the emanating from credit sales. The benefits are the> increased sales and anticipated profits bee.ruse or :I more liberal policy when firms extend trade credit, that is, invest in receivables, the intend to increasing the sales. The impact of a liberal trade credit policy is likely to take two forms First, it is oriented In expansion. In other words, a firm may grant trade credit either to increase to existing customers or attract new customers, motive for investment ' receivables is growth-oriented. Secondly, the firm may extend credit to protect its current sales Here, the motive is sales-retention. As a result of increased sales, the profit-, of the firm will increase the above discussion. is clear that investments in receivables involve both benefits a costs(If trade credit has a major impact on sales, costs and equal. a relatively liberal policy and, therefore, higher investments in receivables, produce larger However, costs will he higher with liberal policies than more receivable management should aim at a trade-off between is decision 10 commit funds tor the to grant credit ) based Oil a comparison of benefits and costs while optimum of The costs and benefits to be compared are marginal c and benefits. should only consider the incremental (additional) benefits and costs the result from dung the receivables or trade credit economic conditions and industry practices have a strong impact the level in this type of current is also affected . A firm has or no control over environmental factors, such as condition practices. But improve its profuse through a properly credit management.

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