Asked by Angie Rivera on Jul 14, 2024
Verified
Loosening a firm's credit standards is likely to result in:
A) lower sales.
B) smaller bad-debt losses.
C) a shorter average collection period.
D) None of the above
Bad-Debt Losses
Financial losses that occur when borrowers fail to pay back their loans.
Credit Standards
The criteria and measures used by lenders to determine the creditworthiness of potential borrowers.
Average Collection Period
The average number of days it takes for a business to receive payments owed by its customers.
- Analyze the impact of easing or tightening credit policies and collection processes on financial metrics.
Verified Answer
AS
akashdeep singhJul 19, 2024
Final Answer :
D
Explanation :
Loosening a firm's credit standards typically results in higher sales due to more customers being able to purchase on credit, potentially larger bad-debt losses because of the increased risk of default by less creditworthy customers, and a longer average collection period as more customers take longer to pay. None of the provided options accurately describe these outcomes.
Learning Objectives
- Analyze the impact of easing or tightening credit policies and collection processes on financial metrics.