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Time to rethink the credit you offer consumers.

Time to rethink the credit you offer your customers

26 March 2024

Most business owners are driven by sales targets and to meet these targets they may be tempted to offer extended payment terms.

Balancing Sales Targets and Financial Health

Business owners often feel the pressure of sales targets, leading them to offer extended payment terms.

Imagine a situation where your business gives a customer 60 days to pay after delivering goods or services. Your money essentially stays in their bank account for this period.

If you have sale-related expenses that need to be paid before the customer pays their bill, you bear the cost until they settle the account.

The saying “cash is king” rings true in business. Business owners need to keep a close eye on how effectively they can turn a sale into cash in the bank.

Outstanding customer payments might seem like a future cash influx, but you can’t spend or invest trade debtors.

When you allow customers extended credit terms after a sale, you’re essentially letting your money stay in their bank accounts.

The Risks of Over-Trading and the Importance of Advice

Offering overly generous credit terms poses another significant risk: over-trading. If you have to pay for your goods and services on less generous terms than those you offer your customers, you’ll deplete your spending power unless you have significant cash reserves.

In conclusion, while sales targets are important, they should not compromise the financial health of your business. It’s crucial to balance the need for sales with the necessity of maintaining a healthy cash flow. Remember, a sale is only beneficial when it leads to cash in the bank. So, before offering extended credit terms, consider the potential risks and seek professional advice. This way, you can ensure that your sales strategy aligns with your overall business goals and contributes to your long-term success.

Source: Other Tue, 26 Mar 2024 00:00:00 +0100

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