WHY BUSINESSES EXTEND GOODS AND SERVICES ON CREDIT

Posted by:  Zipporah Gikonyo   On   November 06, 2020

Extending goods and services on Credit in the past was looked at,a direct ticket to ruining a business,selling on cash was a requirement for business success and It is no wonder there are stickers in some businesses and public service vehicle that carry a message " For Credit come tomorrow" .



Selling on credit has evolved and has become a norm for businesses,the cash out flows no longer match with cash in flows and therefore a need for credit to keep the business a float. Credit sales are an evil, if they are done in unprofessional way. Due to the increase in need for credit, credit professionals in every business have become a necessity to ensure it is managed in a professional way. In Kenya CCP (K) professionals are the people entrusted with the management of credit in most businesses and lending institutions.



Why Credit?




  1. Credit is extended as a tool to increase sales. When customers are given goods and services on credit, they are likely to buy more with the hope of paying once they receive their income. Business use credit to expand and increase their customer base and sales respectively.

  2. Customer loyalty- Credit is a sure way of ensuring customer loaylty. It entices customers to remain with the supllier due to the credit being extended.

  3. Market culture- If credit is the industry culture then one must extend it to customers to remain in business

  4. Competitive advantage- Some businesses offer credit terms to customers to ensure they are ahead of the competition in order to increase sales and market share.

  5. For actual billing purpose- Some services must be extended on credit so that billing can be carried out on actual consumption. Utility companies  have to extend credit before they can bill customers for what they have consumed within a given period.

  6. Price sensitivity factor- when goods and services are offered on credit terms customers become less sensitive to price and rarely bargain for a discount. This way a business can mazimise on profits.

  7. Nature of goods- Some goods cannot be outrightly purchsed on cash due to high price and customers demand credit to be able to acquire expensive items.

  8. Condition of goods- some goods are slow moving requiring a long credit period for the retailers to push them in the market. Goods with short expiry period are also extended on credit in order to push them into the market.



Credit is therefore a necessary evil that we cannot do without in the world of business. All that is needed is proper management to ensure customers honors their obligations on time through follow-up. Engage services of a qualified Certified Credit professional (CCP- K). To become a professional in Credit Join Tumaini Institute of Mangament Studies.



If you need to equip your team with credit skills contact Credit and Debt Management Srevices Ltd and also for debt collection services.



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