Question

If a company is concerned about extending credit to a risky customer, it could do any of the following except: Select one: a. require the customer to pay cash in advance. b. require the customer to provide a letter of credit or a bank guarantee. c. contact references provided by the customer, such as banks and other suppliers. d. provide the customer a lengthy payment period to increase the chance of paying.

Answer 1

Answer:

D. Provide the customer a lengthy payment period to increase the chance of paying.

Explanation:

This is explained to be one of the working ethics found in some working and recruiting bodies or companies.

This trade payables’ payment period ratio here is said to represents the time lag between a credit purchase and making payment to the supplier. As trade payables relate to credit purchases so credit purchases figure should be used in calculating this ratio.

However as the amount of credit purchase is usually not separately available in the income statement so in that case total purchases could be used.

Like other ratios, this ratio is observed over a period of time and compared with the other businesses in the same industry.