Question

Place the following steps for developing a credit policy in the correct order of process: A: The company hopes that few customers will miss payments, so it decides to take no action to collect bad debts. B: The company decides that payments must be made within 45 days. C: The company decides that it's willing to lose sales in exchange for less bad debt risk. B, C, A C, A, B B, A, C C, B, A

Answer 1

The correct sequence for developing a credit policy is first deciding the risk versus sales balance (C), then establishing payment terms (B), and finally, the strategy for debt collection (A), which results in the order C, B, A.

Step-by-step explanation:

The correct order for developing a credit policy is first deciding on the acceptable level of risk versus sales, then setting payment term conditions, and finally determining the actions for collecting debts. This sequence ensures that a company's credit policies are aligned with its financial strategy and risk management practices.

1. The company decides that it's willing to lose sales in exchange for less bad debt risk (C).
2. The company decides that payments must be made within 45 days (B).
3. The company hopes that few customers will miss payments, so it decides to take no action to collect bad debts (A).

Therefore, the correct order of the process is C, B, A. A company must first decide on its tolerance for bad debt and potential sales loss, set terms that are consistent with this risk appetite, and then conclude with its strategy for handling delinquencies.

Answer 2

Answer: C, B, A

Step-by-step explanation:

First the company would decide that it would like less bad debt risk and would be willing to risk losing sales by instituting tougher restrictions on credit sales.

One such restriction would be that payments must be made within 45 days.

With this restriction, the firm will hope that less doubts are defaulted on so it will not take any action to collect bad debts.