Business firms often sell goods on credit to facilitate sales. It is valuable to customers as it augments their resources, and it is particularly appealing to customers who cannot borrow from other sources or find it very expensive or cumbersome to do so.

The credit period extended by business firms usually ranges from 15 days to 45 days. When goods are sold on credit, finished goods get converted (from the point of view of the selling firm) into receivables (book debts). Receivables, when realized, generate cash.

The important dimensions of a firm