From the course: Finance for Non-Financial Managers
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Managing receivables and inventory
From the course: Finance for Non-Financial Managers
Managing receivables and inventory
- Consider these questions. Why would any company sell on credit? Why not just insist on cash payment immediately? Also, why not have a huge inventory to make sure that you can satisfy the needs of every possible customer who walks through the door? Conversely, why have any inventory at all? Well, first, let's consider the benefits and costs associated with selling on credit. Credit sales are an age old marketing technique. If we offer credit to our customers, we'll give more sales. If I'm offering a product and insist that you pay cash and my competitor down the road is allowing you to pay in 30 days for the same product, you're likely to go to my competitor. So if selling on credit increases sales, why not offer credit to everyone? If you offer credit to everyone without any conditions or credit checks, there will be a lot of people who will buy on credit, but who will never pay. In addition to bad debts, the other common costs associated with selling on credit are bookkeeping costs…
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