What are the benefits and cost of granting credit to debtors?
Benefits
- Increasing sales:
- new customers from cash-only suppliers
- bring planned purchases forward
- impulsive purchases
- customers who would not otherwise have purchased
- Reducing the cost of making sales (eg., counter staff)
Costs
- Opportunity cost of funds being tied up
- Cost of slow payers, bad debts, specialist collection services
- Cost of administering the system
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