Regardless of whether you are a business-to-business company or business to-consumer, your customers may ask you to extend credit. By extending credit, you will be making your product or service more accessible to more people. As credit has become more widely available, consumers have come to expect that credit cards will be readily accepted, and vendors are expected to give payment terms. As a retailer, whether with a physical storefront, virtual storefront, or both, you should consider accepting credit and debit cards, as they have become ubiquitous.
The Costs and Benefits of Credit
Extending credit has costs and benefits to all types of organizations. It brings benefits in the form of more purchases made by customers, which will build the firm’s revenues and growth. American consumers have become accustomed to being able to make purchases, ranging from a cup of coffee to major appliances on credit cards. They don’t expect to have to save up the full price of a home or an automobile before purchasing it. Business owners expect to be able to establish credit terms with their vendors. Businesses that don’t offer credit options may lose customers to the ones that do.
The benefits of offering credit are offset to some degree by both potential and realized costs. The decision to extend credit is one that will affect pricing and financial performance. Whether you extend credit directly to your customers or work through a third-party vendor, you need to recognize that your cash flow will be slowed and your prices will be lowered as a result. Credit can be extended directly through installment credit for consumers and through trade credit for companies. It can be provided indirectly, through the acceptance of credit cards—MasterCard, VISA, American Express, and Discover being the most widely used. The specific costs to your business are discussed in greater detail in the following section. Learn more about extending credit and things related to marketing only at LSBF.
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