When a business extends credit to its customer, the business effectively becomes their banker. This is because the business has lent money to the customer, free of interest for 30 days or more. In the meantime, the business has lost the use of that cash, while hoping that it will be paid.
Extending credit on a regular basis affects a business in 3 ways
1. The business loses interest income that it could have earned – even in a low interest savings account.
2. The business may not have enough liquid funds to pay for volume discounts or early payment discounts from its suppliers.
3. The business may lack the working capital to begin the next job or project and thereby risk losing potentially profitable business from creditworthy customers.
© 2007 Sanjeev Aaron Williams & Cashwerks All Rights Reserved
Extending credit on a regular basis affects a business in 3 ways
1. The business loses interest income that it could have earned – even in a low interest savings account.
2. The business may not have enough liquid funds to pay for volume discounts or early payment discounts from its suppliers.
3. The business may lack the working capital to begin the next job or project and thereby risk losing potentially profitable business from creditworthy customers.
© 2007 Sanjeev Aaron Williams & Cashwerks All Rights Reserved
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