The credit policy of a firm is not decided for which combination of the following? a. Maximisation of sales b. Minimisation of bad debt losses c. Maximisation of collection from debtors d. Minimisation of adverse effect on the volume of sales Codes:
a, b and d
Concept: A firm's credit policy is framed by weighing the objectives of granting credit - chiefly boosting sales while containing the losses and risks that credit brings - whereas recovering dues already outstanding belongs to a separate collection policy.
The genuine objectives the credit policy balances are the maximisation of sales through liberal credit (a), the minimisation of bad-debt losses that credit brings (b), and the minimisation of any adverse effect on the volume of sales (d). These three trade-offs are what the credit policy is decided around.
Example: Extending easier credit terms lifts sales (a) but raises default risk (b), so the policy is tuned to gain volume without a bad-debt blow-up - illustrating exactly these trade-offs.
Maximisation of collection from debtors (c) belongs to the firm's collection policy - how outstanding dues are recovered - not to the credit-granting policy, so every option containing c is ruled out. The combination representing the credit policy is therefore a, b and d, which is the keyed option (4).
Hence the code is a, b and d.
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