What is a 'credit policy'?

A 'credit policy' refers to a set of guidelines and criteria that an organization uses to assess the creditworthiness of potential and existing customers. This policy helps determine whether to extend credit to a customer, how much credit to extend, and the terms of that credit. By establishing clear parameters, a credit policy enables the organization to manage risk effectively while ensuring that it can collect payments on the credit it extends. It typically includes factors such as credit history, financial stability, and other relevant metrics to evaluate a customer's likelihood of repaying their debts.

The other options describe different business concepts. A method for increasing sales pertains to marketing or sales strategies; a strategy for employee management relates to human resources and organizational behavior; and a standard for product pricing addresses how products are valued in the market. These do not encapsulate the primary purpose and function of a credit policy focused on evaluating and managing customer credit risk.