A large manufacturing firm has been selling on a 3/10, net 30 basis. The firm changes its credit terms to 2/20, net 90. What change might be expected on the balance sheets of its customers?
A)Decreased receivables and increased bank loans
B)Increased receivables and increased bank loans
C)Increased payables and decreased bank loans
D)Increased payables and increased bank loans

Question

Quizplus · Accepted Answer

The new credit terms offer a longer period to pay (90 days instead of 30 days), so customers are likely to increase their payables. The new credit terms also offer a smaller discount for early payment (2% instead of 3%), so customers are less likely to take advantage of the discount and are more likely to pay later. This will lead to increased payables and decreased bank loans.

A Large Manufacturing Firm Has Been Selling on a 3/10