Reference no: EM132916969

Bad debts is the variable of interest to this study, the variance in which is theorized to be explained by the three factors of credit policy, monitoring of receivables, and pay-out period on installment loans. A sensible credit policy, no doubt, will reduce bad debts. A follow up on accounts receivable will further reduce bad debts by recovering as much as possible before things get out of control. The pay-out period will also have an effect on the amount of bad debts. If the pay-out period is too long (stretching over, say, several years), there is likely to be a tendency to slack off on the installment payments (the intervening variable), especially if the value of the product depreciates substantially. However, customers who consider their reputation for creditworthiness as paramount, will still honor their commitments despite the long drawn out payment periods. Thus, class of customers will moderate the relationship between the independent variable, pay-out period, and the intervening variable, slacking off on payments'.

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