A company should change its credit extension policy only if the expected marginal benefits of the change
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A company should change its credit extension policy only if the expected marginal benefits of the change will exceed the expected marginal costs. A more liberal credit policy normally leads to increased sales and generates marginal benefits in the form of higher gross profits. The marginal costs of this type of policy, however, include the cost of the additional funds invested in accounts receivable and inventories, any additional credit checking and collection costs, and increased bad-debt expenses.: L01
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