Which of the following is not a constituent of the credit policy of a business firm?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Collection period
The “Collection Period” is not a part of the credit policy — it is an outcome or result of the policy. It indicates the average time taken to collect receivables, not a policy decision itself.
A credit policy of a business firm governs how it extends credit to its customers and how receivables are managed. The main constituents (elements) of a credit policy are:
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Credit Standards → Criteria used to decide to whom credit will be granted.
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Credit Terms → Conditions of sale, including credit period and cash discount.
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Collection Policy → Guidelines and procedures for collecting overdue accounts.