Accounting - 6. Cash or credit?
6. Cash or credit?
Firms supplying goods or services on credit naturally take a greater risk
than those 'selling' for cash. The temptation to increase sales or fees by
offering credit may well be at the cost of supplying to unreliable or slow
payers. Costs incurred in collecting debts may well exceed the benefit of
additional sales, they may also lead to the downfall of your business.
Some examples of debt collection costs include:
* interest expense on money borrowed whilst waiting for debts to be settled
* legal expenses
* invoicing costs
* bad debts
Where a small business relies on a larger firm for the bulk of its work
and has to wait for payment then, if that firm defaults, the smaller firm
may find itself in dire circumstances.
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