Which of the following is considered a good credit practice?

• A. Extending unlimited credit to all customers without evaluation
• B. Granting credit based solely on customer requests
• C. Regularly reviewing customers' creditworthiness before extending credit
• D. Ignoring overdue accounts to maintain customer relationships

Answer: (C)

Verified step by step guidance

1. Understand the concept of credit practices: Credit practices involve evaluating the financial reliability of customers before extending credit to ensure the business minimizes risks associated with non-payment.
2. Identify the importance of reviewing creditworthiness: Regularly reviewing customers' creditworthiness helps businesses assess the likelihood of repayment and avoid extending credit to high-risk customers.
3. Evaluate the options provided: Analyze each option to determine whether it aligns with good credit practices. For example, extending unlimited credit without evaluation or granting credit based solely on customer requests are risky practices that could lead to financial losses.
4. Recognize the importance of overdue account management: Ignoring overdue accounts to maintain customer relationships can harm the business's cash flow and financial stability. Addressing overdue accounts is essential for effective credit management.
5. Conclude that regularly reviewing customers' creditworthiness is the best practice: This approach ensures the business makes informed decisions about extending credit, reducing financial risks and maintaining healthy customer relationships.