Banking · Credit Risk Management

What is the primary purpose of establishing customer credit limits in business business operations?

Verified Solution4 OptionsUpdated: October 2026👁️1 View

1To manage the risk of encountering severe inventory shortages.
2To manage the risk of loss to the business arising from credit customers being unable to pay for goods sold.✓
3To manage the risk of cash-paying customers being unable to pay for goods sold.
4To enable the entity to decide whether trade or early settlement discounts should be offered to individual customers.

Correct answer

To manage the risk of loss to the business arising from credit customers being unable to pay for goods sold.

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