How do firms decide whether it makes sense to grant credit to a customer?

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How do firms decide whether it makes sense to grant credit to a customer?



Answer: CREDIT POLICY refers to the decision to extend credit to a customer. The job of the credit manager is not to minimize the number of bad debts; it is to maximize profits. This means that you weigh the odds that the customer will pay, providing you with a profit, against the odds that the customer will default, resulting in a loss. Remember not to be too short-sighted when reckoning the expected profit. It is often worth accepting the marginal applicant is there is a chance the applicant might become a regular and reliable customer.

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