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CREDIT POLICIES

In the discussions it has been clearly shown that the firm’s objective with respect management is not to collect receivables quickly, hut attention should also given to the benefit-cost trade-off involved in the various areas of accounts receivable management. The first decision area is credit policies. The credit of a fine provides the -framework to determine (a) whether or not to extend credit to a customer and (b) how much credit to extend. credit policy decision of a fine has two dimensions: (i) Credit standards and (ii) Credit analysis. A firm has to establish and use standards in making credit decisions, develop appropriate sources of credit information and methods of credit analysis. ~’e illustrate below how these two are relevant to the accounts receivable management of a firm.

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