What is the purpose of screening debtors in a business?

The purpose of screening debtors in a business primarily revolves around assessing customers' credit eligibility for future lending. This process helps businesses mitigate the risk of extending credit to individuals or entities that may not be able to repay their debts. By reviewing a debtor's credit history, financial stability, or past payment behavior, a business can make informed decisions about whether to grant credit and under what terms.

This assessment is crucial as it directly impacts cash flow and the overall financial health of the business. A well-executed debtor screening process ensures that the business can minimize potential losses from bad debts, maintain healthy customer relationships, and make strategic lending decisions.

The other choices do not align with the primary objectives of debtor screening. Increasing the number of customers focuses more on marketing and outreach rather than credit assessment. Determining pricing strategies pertains to cost analysis and market positioning, while evaluating product costs is related to operational efficiency rather than creditworthiness. Therefore, the emphasis of debtor screening is clearly on understanding credit eligibility to maintain prudent financial management.