The optimal credit policy:
A)is the policy that eliminates all potential bad debts
B)is the one which offers credit to the largest number of customers
C)minimises the carrying costs associated with granting credit
D)is the policy that produces the largest amount of sales for a firm
E)minimises the total cost of granting credit

Question

Quizplus · Accepted Answer

The optimal credit policy is the one that minimizes the total cost of granting credit, which includes both carrying costs and bad debt costs. This ensures that the firm is not losing money by offering credit, but also not turning away potential customers by being too stringent with credit policies. The other options (A, B, C, and D) may all have some benefits, but they do not necessarily lead to the lowest total cost of granting credit.

The Optimal Credit Policy