Question

In general, which of the following statements is false?

Select one:
a. the longer it takes to collect accounts receivable, the higher the risk of bad debts
b. companies extend credit in order to increase sales revenue
c. good credit granting policies and monitoring practices have little effect on bad debt expense
d. days sales in receivables should be low enough to reduce bad debts

Answer 1

Good credit granting policies and monitoring practices can actually have a significant impact on bad debt expense. By setting clear credit criteria, conducting credit checks, and regularly monitoring customer payments, a company can minimize the risk of non-payment or late payment, reducing the likelihood of bad debt expense.

Step-by-step explanation:

The false statement is: c. good credit granting policies and monitoring practices have little effect on bad debt expense

Good credit granting policies and monitoring practices can actually have a significant impact on bad debt expense. By setting clear credit criteria, conducting credit checks, and regularly monitoring customer payments, a company can minimize the risk of non-payment or late payment, reducing the likelihood of bad debt expense. Effective credit management strategies can help a company maintain a healthy cash flow and minimize financial losses.

For example, implementing credit limits, requiring collateral, and establishing payment terms can all help to mitigate the risk of bad debt. Regular monitoring of customer accounts allows companies to identify potential issues early on and take proactive measures to address them, such as reaching out to customers with overdue payments or adjusting credit terms if necessary.