FM27 26 - Answer: The four variables which make up a firm's...

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Mini Case: 27- 26 Answer: The four variables which make up a firm's credit policy are (1) the discount offered, including the amount and period; (2) the credit period; (3) the credit standards used when determining who shall receive credit, and how much credit; and (4) the collection policy. Cash discounts generally produce two benefits: (1) they attract both new customers and expanded sales from current customers, because people view discounts as a price reduction, and (2) discounts cause a reduction in the days sales outstanding, since both new customers and some established customers will pay more promptly in order to get the discount. Of course, these benefits are offset to some degree by the dollar cost of the discounts themselves. The credit period is the length of time allowed to all "qualified" customers to pay for their purchases. In order to qualify for credit in the first place, customers must meet the firm's credit standards . These dictate the minimum acceptable financial
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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