11) A firm's credit selection procedures must be established a : 1415271
11) A firm's credit selection procedures must be established on a sound economic basis that considers the costs of investigating the creditworthiness of a customer and the expected size of its credit purchases.
12) A firm's credit standard is a procedure for ranking an applicant's overall credit strength, derived as a weighted average of scores on key financial and credit characteristics.
13) As credit standards are relaxed, sales are expected to increase and the investment in accounts receivable is expected to decrease.
14) The turnover of accounts receivable can be calculated by dividing 365 days by average collection period.
15) Increasing the length of the credit period can increase sales, but both the investment in accounts receivable and bad debt expenses are likely to increase as well.
16) If a firm relaxes its credit standards, the volume of accounts receivable increases and so does the firm's carrying cost.
17) A relaxation of credit standards is expected to affect profits positively due to lower carrying costs, whereas tightening credit standards would affect profits negatively as a result of higher carrying costs.
18) The increase in bad debts associated with tightening credit standards raises bad debt expenses and has a negative impact on profits.
19) The cost of marginal investment in accounts receivable can be calculated by finding the difference between the average investment in accounts receivable before and after the introduction of the changes in credit standards.
20) The cost of marginal bad debts is found by multiplying a firm's opportunity cost by the difference between the level of bad debts before and after the relaxation of credit standards.