Q. Credit Standards for Formulation of Optimum Credit Policy?
Credit Standards: - Credit standards are the essential criteria set for extension of credit to customers. Decision of credit to customers are engaged on the basis of their credit rating security provided by them average collection period of the firm as well as financial ratios. Principles are set for all these factors. A firm is able to control its credits by setting the credit standards accordingly. If credit standards are moderate more credit will be extended. Alternatively if standards are tight less credit will be extended. Issue for which standards are set can be classified keen on two broad categories namely:
a) Qualitative Factors: - Qualitative factors such as willingness as well as ability of the customers to pay for purchase public image of the customer and other social factor are included.
b) Quantitative Factors: - Quantitative factors such like average collection period and financial ratios.