Credit’s fine, but watch the cash flow
JUGGLING ACT: PAYING LATER REQUIRES A VERY STEADY HAND
Credit sales are everywhere, boosting sales and bankrupting the unwary. But it doesn’t have to be that way.
Finance has drastically changed over the years and today most service providers boast an array of sophisticated financial instruments. Gold coins and, more primitively, barter trade were once the favourite medium for the exchange of goods. At some point, cash was king, well physical cash to be exact.
Dots and dashes
Today electronic money has taken over, with 95% of money transactions executed electronically. So, with electronic money reigning supreme, other instruments have clambered onto a sales bandwagon fuelled conveniently by credit.
Credit sales are synonyms with business because most medium-to-large businesses offer credit to their customers. And they do so because they have the financial power, quantity of product and legal muscle backing them up.
Basically, credit sales occur when a business offers a customer a product without that customer having to make payment upfront. The business will then stipulate when payment must be made.
This method of sales is the quantum opposite of cash on delivery and carries with it a host of dynamics that demand appropriate method.
With COD, the client can examine the product on the spot, delivery is no intangible; it has happened. Payment is certain.
Credit sales have greatly affected the way business is done today and as an entrepreneur you are affected one way or another. Let’s say you decide to engage in credit sales by offering your customers credit. Is this a wise move? Yes and no.
Yes because the original purpose of credit sales was to lure customers and it worked because customers prefer doing business with a company that allows them to buy now but pay later. Secondly. it was to tie down customers to you because once they purchase on credit this month, the following month when payment is due they would again require more supplies which you would gladly give to them on credit.
And no because credit sales are risky. Small businesses do not have the financial power to withstand losses if customers do not pay. Secondly, you need to have large quantities of product to cater for both credit and COD customers.
Balancing the two to ensure you do not go under is not an easy task. And, finally, you’ll need legal muscle; credit sales are all about your ability to recoup your money.
Buy now, pay later
On the other hand, you as an entrepreneur would welcome purchasing supplies on credit. It is financially beneficial to get a product now, use it to sell to your customers and only pay your supplier when your customer pays you.
And this last bit of advice may sound trite, but don’t ever forget it: Just make sure you don’t forget that you haven’t paid for the supplies and mistakenly think you have made more profit than usual.