10.3 SELECTION OF CUSTOMERS
Apart from the formulation of a general credit policy for the firm, it is equally important to know to whom and to what extent credit facilities are to be offered. A firm takes the following steps in selecting its customers:
- Collecting necessary information
- Analysis of the information
- Fixation of the credit limit
10.3.1 Collecting Necessary Information
For extending credit to a customer, the firm must ensure that the financial background and the payment habits of the customer are good enough to honour bills. To this end, it needs to collect the necessary information about the customer. However, the process of collecting information suffers from two problems. First, collecting credit information involves expenses ...
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