A lot of companies extend credit to their customers with the idea that this will help them gain more business. While extending credit may seem like a good decision for some companies, it is not always the case.
Businesses like retail stores, healthcare providers, and transportation services require straight cash transactions for their rendered services. But other business types pursue extended credit.
Offering credit can get customers to spend more which can turn into increased sales. It can also establish healthy company-customer relationships.
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| Image source: theatlantic.com |
Many businesses offer credit in hopes that they can sell better than their competitors.
But offering credit can bring more losses than gains for some companies, especially with startups and local businesses. Credit can cost the company money. When a seller offers credit, the customer is using the product they have on loan, but the company gets nothing from it until they are paid.
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| Image source: nerdwallet.com |
When companies offer credit, they assume that the customer has the intention and ability to pay. They look at customers as blank, clean slates who can pay on time. But often, customers take full advantage of the credit, causing the company to lose money. Being aware of a customer’s credit rating and history can be a great way to know about their intentions of paying. Offering credit is not always bad, but it could cause damage if it is given to the wrong customer.
Brennan & Clark is a collection agency that helps businesses get profit through customized receivables support solutions. More about the company’s services here.
