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Fundamentals of Financial Management, Third Edition by Vyuptakesh Sharan

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10.2 CREDIT POLICY

10.2.1 Optimising the Term of Credit

Whether the credit policy is tight or liberal depends upon what the term of the credit is. A credit term with longer period for making payments is supposed to be liberal. For example, a net 60 credit term is more liberal than a net 30 credit term. It also depends on whether the term includes any discount if payment is made by a section of the customers at any time earlier than the stipulated date. For example, a credit term of 2/10 net 30 means that the amount is to be paid within 30 days, but a customer will be entitled to a 2% discount if he or she pays the amount within 10 days.

Maximising the Value of the Firm: A firm cannot go on liberalising its credit policy indefinitely. This is ...

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