If your business is like most, you’d prefer to have all of your sales paid in cash. As we all know, this is rarely the case. These days, many customers simply don’t carry much or any cash when they shop. Additionally, because of competition from other firms, those that offer credit to their customers often “bring in the sale”. 

Offering commercial credit may be a necessity for many businesses. However, it does come with some downside, especially in the managing of the credit solutions offered.

Advantages of Offering Commercial Credit

By offering credit your business will benefit in several ways. Statistically, those firms that offer credit experience increased sales compared to their cash-only counterparts. Because of the convenience, repeat customers and customer loyalty also increase. These advantages translate to a bonafide competitive advantage. Furthermore, if you offer credit to your customers, you can structure incentives for those buyers who pay their credit off early.

Disadvantages of Offering Commercial Credit

There is a downside to trade credit, summarized by these five points:

• Customer Creditworthiness. Not all people pay their bills on time

• Keeping Up with Money Owed. Collecting and managing the future stream of incoming payments takes time and resources. 

• Non-payment of Debts. Unfortunately, some people never pay off their debt. 

• Effect on Cash Flow. Cash flow, the lifeblood of any business, is negatively affected when sales are made on credit. 

• Financing Costs to the Business. When extending credit, a business must finance its receivables. For example, the business itself may need to obtain and use credit when buying from its suppliers.  

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Getting the right financing is one of the most important and challenging parts of running a business. Without capital, you can’t invest and grow. The good news is that Critical Capital Solutions is here to help.