IOFM Accounts Receivable Practice Exam 2026 - Free Accounts Receivable Questions and Study Guide

Regularly reviewing customer credit limits is essential because it helps ensure that the credit extended aligns with the current financial status of the customer. Customers' financial situations can change due to various factors such as economic conditions, changes in business operations, or shifts in payment behavior. By routinely checking and updating credit limits, a company can mitigate risk, preventing potential losses from bad debts. This practice allows businesses to make informed decisions regarding the extent of credit they can safely extend, ultimately enhancing cash flow and financial stability.

In contrast, the other options do not directly relate to the purpose of reviewing credit limits. Increasing product diversity, reducing advertising costs, and shortening distribution times are operational strategies that do not influence or reflect the critical assessment of customer creditworthiness. Therefore, maintaining current and appropriate credit limits is fundamentally about managing financial risk and ensuring a healthy customer relationship.