Collection Effort
Cash Discount
Credit Standard
Paying Practices of Debtors
Answer is Right!
Answer is Wrong!
The correct answer is: A. Collection Effort
A credit policy is a set of rules that a company uses to determine whether to extend credit to customers, and if so, on what terms. The policy includes factors such as the credit limit, the interest rate, and the grace period.
Collection effort is not a part of a credit policy because it is a process that is used to collect debts that are already past due. It is not a factor that is considered when a company decides whether to extend credit to a customer.
The other options are all part of a credit policy.
- B. Cash Discount is a discount that is offered to customers who pay their bills early. It is a way to encourage customers to pay their bills on time and to reduce the amount of money that a company has to tie up in accounts receivable.
- C. Credit Standard is the minimum level of creditworthiness that a company requires of its customers. It is used to determine whether to extend credit to a customer and on what terms.
- D. Paying Practices of Debtors is the way that customers pay their bills. It includes factors such as the average payment time and the number of late payments. This information is used to assess the creditworthiness of customers and to determine whether to extend credit to them.