Which of the following is not a constituent of the credit policy of a business firm?

Collection period

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:

1. Credit Standards → Criteria used to decide to whom credit will be granted.

2. Credit Terms → Conditions of sale, including credit period and cash discount.

3. Collection Policy → Guidelines and procedures for collecting overdue accounts.