In business, the owner has to make multiple decisions that aren’t in his/her favor, but to build or retain customers; it is essential. One of those essential practices is to sell goods and services on credit.
However, not every business requires or practices credit selling, but small scale businesses do provide their services on credit.
Well, selling is done with the motive of profit in the future but might end up in the disadvantages of selling on credit in many events. We are sharing a guide regarding the aspect.
Disadvantages of selling on trade!!
- Credit risk with customers: it is necessary for the owner to analyze the creditworthiness of each customer before providing them credit.
Checking for the customers’ credit references and attaining their credit report helps in analyzing the creditworthiness.
- Probability of bad debts: even you have analyzed the creditworthiness of any customer but still can come in a situation where you can face bad debts.
In the situation of bad debts, then you can do take services of the collection agency, but an additional cost will be required to be paid off, and you will require to write off the overdue account and create an account for bad debt.
- Disturb in cashflow: for every business, it is essential to maintain your business, so funding your debtor book will affect your accounts. A business owner needs to look into the disadvantages of checks while making credit selling.
The final judgment
It is easy to grasp from the aspect that disadvantages of offering credit to customers can lead to bad debts and possess a higher risk of losing funds. Additionally, credit selling is not optimal for every customer, but looking at the creditworthiness, one performs this practice. For retaining your business into the competition, providing credit to customers becomes essential.