Which of the following is a disadvantage of extending credit to customers?
Answer and Explanation:
Which of the following is a disadvantage of providing credit to customers?
The biggest risk to offering credit comes from giving credit to customers who don't pay you. While many customers will make payments on time, some will be late on payments. Or, they might need to make arrangements for late payment options.
What are the risks of extending credit to customers?
Business owners who are debating whether to agree to extended credit terms need initially to evaluate the potential risks and rewards. The biggest risk is non-payment; the higher the amount owed, or the agreed length of term, the greater risk the business is exposed to.
Which of the following is a disadvantage of selling on credit quizlet?
The disadvantages of selling on credit include increased wage costs incurred in hiring personnel to monitor and track credit customers, bad debt costs from accounts that are collected late or not at all, and delayed receipt of cash.
What are the potential advantages and disadvantages of extending credit?
- Advantage: Meet the Competition. ...
- Advantage: Increase in Sales. ...
- Advantage: Better Customer Loyalty. ...
- Disadvantage: Negative Impact on Cash Flow.
Which is not an advantage of offering credit to customers?
1) Bad debt may exist: When you offer credit to customers, you allow them to pay their bills in the future. However, if they don't pay you in the future, that results in bad debt for the company.
What does extending credit to customers mean?
One decision every business has to make is whether or not to extend credit to customers. Providing customers with credit allows them to obtain goods and services now while paying for them later. At the same time, you have to be careful to do this in a way that's responsible and doesn't harm your cash flow.
What does extending credit mean?
Also, extend someone credit. Allow a purchase on credit; also, permit someone to owe money. For example, The store is closing your charge account; they won't extend credit to you any more, or The normal procedure is to extend you credit for three months, and after that we charge interest.
When would you extend credit to a customer?
It is wise to start with cash sales when first dealing with a client to start to build trust. As you gain trust from sales history with the customer, you can start to navigate way towards extending a line of credit. Developing a thorough credit policy to gain more trust in a client's background.
What is the biggest disadvantage of credit?
Using credit also has some disadvantages. Credit almost always costs money. You have to decide if the item is worth the extra expense of interest paid, the rate of interest and possible fees. It can become a habit and encourages overspending.
What are three disadvantages of credit sales?
- Customers can potentially go bankrupt. If customers go bankrupt, the amount owed may be unrecoverable and must be written off.
- Costs of collection may decrease profits. If a customer misses the payment or refuses to pay, the company may incur collection costs in trying to obtain the payment.
Which of the following is a disadvantage of credit or buying on using credit?
| Disadvantages | It costs money |
|---|---|
| Disadvantages | It tempts overspending |
| Further information | Credit makes impulse buying easy. Some consumers go deeply into debt buying items they don't really need and can't really afford. |
| Disadvantages | It ties up future income |
What are the disadvantages of selling directly to customers?
Selling face to face also has some disadvantages including: It is the most expensive sales channel as it demands higher staff and premises costs. Travel time and costs can be significant.
Which of the following is a disadvantage of business credit?
Higher interest rates compared to small business loans. If a business does not pay off the balance each month, interest will accrue, and business credit cards can be costly. Fewer protections against fraud – employees who have access to the business credit card could potentially use the card for their own purchases.
What are the potential advantages of extending credit to customers?
Gain a competitive edge: Not all businesses extend credit, so just by making this a possibility for your customers you are giving yourself an edge. Customers like to buy on credit because it gives them more control over when they pay and provides them with more flexibility and control over their cash flow.
What is advantage and disadvantage of credit?
Answer and Explanation:
ii)A source of cash in case of emergency. iv)It increases purchasing power and standard of living. 2)Disadvantages: i)Charge a fee for late payments. ii)If it is not properly used negative effect on credit...
What is the advantage of accepting credit cards instead of extending credit to customers?
Accepting credit card payments practically eliminates any risk of having to deal with matters that revolve around receiving a bad or bounced check. You will not have to risk a huge chunk of your money on bad checks or wasting time having to track down the customer to properly pay for the goods or services.
What are the advantages and disadvantages of credit quizlet?
List and describe two advantages and two disadvantages of credit. Two advantages of having credit are that it expands your purchasing power and raises your standard of living and is convenient. Two disadvantages of having credit include that the purchases cost more over time and it can lead to overspending.
What are the advantages and disadvantages of accepting credit card payments from customers?
- Pros.
- Cards, Cards, Everywhere a Card. Credit and debit cards are the most commonly used form of payment today. ...
- Easier Than Ever. It's also easier than ever before to accept card payments. ...
- Increase Your Sales. ...
- Cons.
- Fees. ...
- Extra Work. ...
- Fraud and Security.
What are the advantages of consumer credit What are the disadvantages of consumer credit?
Consumer credit provides access to more spending power, which enables you to do things like take out a home loan or make purchases with a credit card. Responsible use of consumer credit can open doors to new opportunities, but borrowing also has the potential to result in unmanageable levels of debt.
How do you extend credit to customers?
Offering customers a variety of payment methods and ensure they're comfortable with one or two of these to cover all bases; Putting credit terms in writing; Implement a trade credit application process which asks for current trade references, banking information and authority to run credit-checks.
What is determined before extending credit?
Credit qualification
Before extending credit to customers, it is essential that you determine their creditworthiness. This is important because it increases the chances of you getting back the money that you have issued out as a credit to the customers as credit. Start by running a background check on them.
Is extending credit a loan?
To "extend credit" or to make an "extension of credit" means to make or renew any loan, to grant a line of credit, or to enter into any similar transaction as a result of which an executive officer, director, or principal shareholder, or any of that person's related interests, becomes obligated, directly, indirectly, ...
What is one disadvantage of using credit quizlet?
A disadvantage to using a credit card is that: the interest rates are high if you do not pay off the balance when due.
What are the disadvantages and disadvantages of credit?
Credit cards have a few disadvantages, such as high interest charges, overspending by the cardholders, risk of frauds, etc. Additionally, there may also be a few additional expenses such as annual fees, fees of foreign transactions, expenses on cash withdrawal, etc. associated with a credit card.
