In an ideal commercial environment, businesses would always get paid in cash. However, because the marketplace is so competitive, companies often need to offer terms of credit to attract and retain customers. Here are some of the benefits and drawbacks of offering consumer credit to your clientele.
Sell More Products
Consumers often do not have the means to pay in full for big-ticket items or large amounts of shopping. However, if you offer them credit, they are more likely to spend more than they otherwise would, knowing that they have a predetermined amount of time to pay their bill.
Even though you give your customers a stipulated time period to pay for their purchases, you have the option of offering them incentives for paying early. This is a win-win situation for you. First, you encourage consumers to make larger purchases by offering credit, and then you persuade them to pay sooner through special incentives.
Providing the option of consumer credit tells your customers that you trust them to pay their bills on time. In turn, your customers will manifest loyalty by continuing to purchase goods from your business.
Get the Edge on Your Competitors
If your company offers consumer credit and your competitors do not, your business will gain a definite advantage in the assessments of potential customers. They will come to you for favorable payment terms rather than to another company where they have to pay cash.
Be Aware of the Drawbacks
Despite the numerous advantages to offering consumer credit, there are a few drawbacks as well. For instance, it may have a short-term negative effect on your company cash flow when customers do not pay for their purchases right away. Additionally, you will have to spend time and money assessing the creditworthiness of your customers and monitoring unpaid accounts receivables. There is the chance that some customers will not pay on time, which means your company will have to invest the effort to make follow-up collection calls.
For more advice on increasing sales by offering consumer credit, contact New Horizon Capital Funding.