Question

6. What should be the considerations in forming a credit policy?

Answer 1

Credit Policy refers to the framimg of rules and regulations regarding the goods sold on credit to the customers. It involves deciding the customers to whom the company wants to extend credit and the relevant time period for the same.

Following should be the considerations for forming a credit policy:

Customer base of the comany: If customers are trustworthy, credit should be allowed

Industry Benchamrking: If all other competitors are allowing credit, the firm should also do the same

Blockage of Funds: Credit leads to blockage of company's funds. This also should be a consideration in forming the credit policy

Availability of short term funds in the market

Availability of credit from the raw materal suppliers/creditors of the company