Corporations are obligated to grant credit for purchases to

Corporations are obligated to grant credit for purchases to their customers. Why is granting credit necessary and what properties should a good credit policy contain?

Solution

Granting credit is necessary because:-

By extending credit to our customers, we give them the option to purchase products or services today and pay for them at a later date. When our business accepts credit card payments and personal checks or invoices customers, it is essentially extending credit on the assumption that customers have the funds to pay for the transaction.When we extend credit to customers through card payments, the credit card company manages the risk. When we extend credit through invoices or personal checks, we are responsible for verifying and accepting payments and managing the risks that come with them.

Extending credit through invoices is common in some industries such as construction or manufacturing, but may not be practical for every business. To decide if extending credit is right for our business, weigh the associated rewards and risks.

THE PROPERTIES OF A GOOD CREDIT POLICY ARE AS FOLLOWS:-