Credit sales refer to giving out goods and services to a customer or client with the payment to be made at a later date. Credit sales refer to transactions that involve payment not being made at the point of sale. Simply put credit sales is a sale in which the amount required for payments would be received at another time. We are all familiar with credit sales and credit buying. What effects does it have on your business?
Advantages of credit sales.
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Credit sales allow customers to generate cash on the commodity before paying. This is especially true for individuals or business persons who are involved in the chain of distribution. A retailer can purchase goods from a wholesaler on credit and pay only after he has made sales on the goods for which credit sales were made.
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Credit sales also help to increase your customer base
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Credit is a great way to increase sales generally.
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They also give you a competitive edge as customers prefer where they can buy now and pay later
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Another advantage of credit sales is that it allows you to build customer loyalty or retention as people who buy on credit are inclined to be more loyal to you and always come back to you.
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Credit sales also allow you to make an increased profit as you can choose to raise the price of a good since it is a credit sale
Disadvantages of credit sales
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Customers may not pay back as and when due. This would lead to you having a shortage in your capital and that might affect your business adversely.
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Credit sales may also reduce your cash flow greatly and you may resort to borrowing to stay afloat or to keep up with the cost of production. This second disadvantage is a result of the first.
Customers may go bankrupt and this simply means that no matter how much they wish they could pay you they are just unable to do so and there is little or nothing that you can do about that depending on how much she owes you give out on credit, your loss would be great. Consider these tips on how to deal with an economic crisis.
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Strained relationships: it is easier to give out items on credit than to retrieve the money owed. Sometimes, customers feel it's their right to owe you and may feel bad or get angry when you try to follow up on their debts. They would prefer that you let them pay on their terms and not worry about how it is affecting your business.
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Selling on credit in some cases would make you spend more. How? You might need to engage the services of debt-retrieving agencies to get the money owed you and this would cost you a percentage of the money being retrieved.
Who should get credit sales?
This is perhaps one of the most difficult questions to answer in business. Much as there are criteria that should be met before selling on credit, you never really know when a creditworthy individual becomes unworthy or would go bankrupt or maybe suffer a crisis in his business.
But as we all know, business is a risk. Take calculated risks when giving out goods on credit, and use the following parameters to determine who gets credit sales.
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Repeat customers: this means you have performed several transactions with the individual and have developed some form of relationship with this person. See how you can get repeat customers using SMS. https ://smartsmssolutions.com/blog/95-products-and-services/1739-how-to-get-repeat-customers-using-sms
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Old customers: these are people you have been in business with over the years. You know them well and know they have good intentions at least
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New businesses: give out goods on credit to new businesses around you. This is to show support and build a relationship with them from the start. Be careful though to only give out limited goods as they are new and may not have much patronage yet. Here are some other ways to support fellow business owners. https://www.score.org/blog/best-ways-support-other-small-businesses-right-now
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Allow credit sales for only those who are willing to have a written agreement: agreement should be put in writing, stating the number and condition of items recently, date of receipt, expected date of payment and other necessary details. Avoid people who are unwilling to sign agreements.
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Individuals should clear up previous debts before getting new credit sales.
Whichever way you choose to run your business, be weary of credit sales. Set monthly limits to avoid you running your own business. Once your limit is reached for the month, do not carry out credit sales till the following month. This way, you can retain your customers by selling on credit and still manage to keep credit sales at a manageable minimum.
If you do not have an account with us, create one now. Use SmartSMSSolutions bulk messaging service to reach out to your debtors. Send text messages to remind them of due payments.