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Fundamentals of Financial Management, Third Edition by Vyuptakesh Sharan

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10.1 BENEFITS AND COSTS OF ACCOUNTS RECEIVABLE

10.1.1 Benefits

Cash sales are free from bad debt losses, yet firms rely more on the credit-sale system as it possesses many advantages. These are as follows:

Greater Sales and Profitability: Credit sales help boost the volume of sales and help improve the firm’s competitiveness in the market. This in turn leads to higher profitability. There are many reasons for greater sales. First, the buyers prefer to buy on credit terms as this improves their liquidity. Second, there are certain marginal customers who can buy only on credit terms. They can only make payments after they resell the goods and, thereby, get cash to make payments. Third, the price of the products in the hands of the consumers is ...

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