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Q. What is Evaluation of Credit Policy?

Evaluation of Credit Policy: - A credit policy is prepared to maintain the investment in receivables at optimum level. Receivable Turnover Ratio can be use:-

Receivable Turnover Ratio = Net Credit Sales / (Average Debtors + Average Bills Receivables)

If this ratio comes to 6, it means that the collection from receivables is being made after 12/6= 2 months. Similarly, if the ratio comes to 3, it means that the collection is being made after 12/3 = 4 months.

Average Collection Period = Months or days in a period / Receivables Turnover Ratio

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M9575741

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