By increasing collection expenditures, a firm can decrease bad debt losses up to a point, beyond which bad debts cannot be economically reduced.

Question

Quizplus · Accepted Answer

Increasing collection expenditures can improve the efficiency of collecting debts and reduce bad debt losses. However, there is a point where further investment in collection expenditures will not result in further reduction in bad debts, making it uneconomical to continue. This is because the cost of collecting the debts may exceed the potential recovery value of the debts. Therefore, beyond that point, bad debts cannot be economically reduced.

By Increasing Collection Expenditures, a Firm Can Decrease Bad Debt