10 Advantages and Disadvantages of Selling On Credit
In business, there are times when you can’t just help but make credit sales. This might be due to many business factors. Sometimes, selling on credit might just be the only way out of your present situation. Selling on credit isn’t as bad as many people make it look, in fact, sometimes, the strength of your business relies solely on credit sales, this is why you have to grab the opportunity if the need arises. However, there are pitfalls to credit sales and we both know this. This is why a lot of people never sell on credit. Many do not bother themselves to know about the advantages of selling on credit, all they put their mind in is the disadvantages, thus making it necessary for the composition of this article. It is no lie that there is always something good about every bad situation and it is the same with credit sales. In putting the disadvantages of selling on credit to mind, you must also know that there are advantages to it too. This article will take you through some of the advantages, not nonetheless ignoring the disadvantages of selling on credit.
I have decided to write them separately by breaking them into two.
Advantages of selling on credit:
- Competitive edge: offering credit sales will give you a competitive edge over your business counterparts. Customers prefer to patronize chances that do not mandate them to make instant payments over ones that make it mandatory. Offering credit sales will earn you customers patronage over your rivals, as customers see it as an avenue to save their money for the meantime and even invest it in something else that might yield them more profit than they have to pay you.
- Increased sales: there is no disputing that offering credit will increase your sales tremendously. This is due to the principle that when you are offering credit sales, many customers will ignore your rivals and run to you for patronage, you might even run out of sales in no time. The more credit you give the more sales you make
- Customer loyalty: offering credits to customers help to build a confidence that you trust and confide in your customers to pay on the due date( this depends on your agreement). It builds solid relationships between you and your customers, and in subsequent times, when they have to make choices, they won’t choose others over you, rather they will choose you over others.
4. Customers retention: selling on credit helps you retain your customers. By offering credit to old customers, you help to retain them by fostering their continued patronage, and by offering credit to new customers, you help to create a customer relationship between you two. First impression they say last long. Your credit sales might be what kept him glued to you without patronizing someone else. Offering credit sales is good especially if you are a new business, who hasn’t grown enough customers.
5. Increased profit: by selling to people on credit, you have the opportunity to increase the price of your products. Many will never take this into consideration since they are not paying a dime in the initial stage. This will yield more profit than usual for you when they finally pay up.
Note that as much as selling on credit is good for the growth of your business, you must make sure you have details of your debtors and do proper follow up.
Read Also: How to Sell Your E-books Online
Disadvantages of selling on credit.
- Bad debts: it is easier to purchase on credit than making payments. Customers whom you have given credits to might not find it easy to pay. Even if they want to pay, some things might come up that would make paying your money less of a priority. Moreover, there are some customers who just love to be known as debtors, once you sell to them on credit, they always find it difficult to pay back and this can really affect your business if not properly managed.
- Loss of capital: giving out credits simply implies you giving out both your profit and your capital on goods out on credit which might not go well if the customer refuses to pay your money . There is a popular saying to business owners that spend every money but don’t spend your capital. Your capital is your startup money, after every sales, you must always see that you separate your capital from your profits, because you have to restock with that capital. But in a situation where you can’t even get your profits let alone capital, you might have to borrow or take loans, and if you do not take cautions, it could lead to the closure of your business.
8. Strained relationships: don’t be surprised that the relationship you thought you could build by offering credit on sales to some people could end up being strained, because some set of people are so hard to bend when it comes to making payments. Even though they might be smiling and begging when they were making their credit purchases, by the time you ask them to pay, don’t be shocked at the outcome, if it led to something you never expected. Many business owners in a quest to make sales and even build customers relationship have ended up being enemies of their customers, because a strained relationship developed in the process of payment. So always do a thorough background check before giving our credit in order to avoid strained relationships.
9. Impact on cash flow: offering credits will affect the incoming of cash in your business. For instance, if you offer credit on a thirty days term. Within those thirty days, you’ll have to pay bills like water and electricity, you’ll have to pay your workers. Since no payment will be made till the next thirty days, you have to pay the affected parties from your ” pocket money”.
10. Liquidity problem: if you sell on credit but do not receive credit sales from supplies, it could affect your business drastically by leading to liquidity problems.
Selling on credit has its own advantages and disadvantages, you just have to see which part addresses your business best and put the right measures in place.
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