Trade Credit: The Pros and Cons

Trade Credit: The Pros and Cons

In a competitive market, selling all your products and services for cash can prove hectic. It is easier to lose customers when the priority is making sales in cash. You can, however, try and balance selling items in cash and giving credit terms. While this can be beneficial, the decision can cause inconveniences to some extent. This guide highlights the pros and cons of trade credit every business should know.

The Pros of Trade Credit

Increased Sales

Most customers will find your business attractive when you give items on credit terms. As a business, increasing your sales becomes easier. You should, however, be keen on the repayment terms before letting your customers use trade credit. With increased sales, growing your business becomes possible.

Competitive Edge

Every business wants to have a productive turnover of items. When you are strict with cash payment, losing your competitive edge is possible. This is, however, different when you include credit terms for your customers. Besides making your business attractive, getting an advantage over your competitors becomes possible.

Customer Loyalty

Having a dependable customer base goes a long way into making your business grow and be productive. Using trade credit becomes vital as you make your buyers comfortable by trusting them with the credit. You also build a long-term rapport and relationship with the customers and enhance loyalty.

The Cons of Trade Credit

Negative Effect on Cash Flow

When making sales, it is crucial to maintain a productive cash flow. This is, however, hard with pending payments due to credit terms. Giving items on credit terms can negatively affect the cash flow and hurt your business financially in the end.

Hard to Monitor Accounts Receivables

When you keep on extending credits, your accounts receivables can get affected in the end. It is important to monitor your account, which is hard with pending payments and unaccounted sales. It is easy for a business that makes sales in cash to monitor its accounts.

Bad Debt

The possibility of some buyers failing to pay entirely is higher. In the long run, this can lead you debt through borrowing loans. Tainting your business reputation becomes easy when you get into debt because of trade credit. Bad debts can also negatively affect your business’s creditworthiness.

Before deciding on using trade credit in your business, learn more. Research the pros and cons or seek guidance to meet your expectations. Call or visit Champagne Global Capital Lending for professional directions.