Write short notes on Conservative credit policy and liberal credit policy.

CPA-Financial-Management-Section-3 Revision kit

Conservative credit policy
A policy of selling goods on credit on highly selective basis to only credit worth customers. It‟s meant to reduce bad debts losses and debtors collection costs. It‟s applicable where the seller is a monopoly or the product has low profit margin or the product is a premium good.

Liberal credit policy
Selling on credit to as many and even red customers as possible. The aim is to increase sales and profit but it may result in high bad debts, high credit administration costs, high debtors collection costs etc. Usually common where the product has high profit margin, is new in the market, is attaining declining stage in its lifecycle or is out of fashion.

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