Page 500 - Business Principles and Management

Chapter 18 • Credit and Insurance

By carefully analyzing credit sales, a business can learn which policies and
procedures are most effective for increasing total sales while keeping uncollectible
account losses to a minimum so that net profits will increase. When bad debts
increase, a firm’s cash flow, profits, and credit reputation decline.

CHECKPOINT

How do businesses benefit from aging of accounts?

18.2 Assessment

UNDERSTAND MANAGEMENT CONCEPTS
Determine the best answer for each of the following questions.
1. A measure of earning power that reflects the person’s potential to
pay, based on current income and other financial obligations, is
a. character
b. capacity
c. capital
d. conditions
2. Which of the following should not be an objective of a company’s
collection procedure?
a. converting credit customers to cash customers
b. collecting the amount due
c. maintaining the goodwill of customers
d. All are appropriate objectives.

THINK CRITICALLY
Answer the following questions as completely as possible.
3. What do you believe is evidence of a person’s character that would
make him or her a good credit customer? A poor credit customer?
4. What can a business do before a customer’s
account becomes overdue to encourage timely
payments?

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