From the course: Foundations of Working Capital Management
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Why do companies sell on credit?
From the course: Foundations of Working Capital Management
Why do companies sell on credit?
- Why would any company sell on credit? Why not just insist on cash payment immediately? - 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 get 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. - The anticipated cost of these bad debts is a trade off to the increased sales from selling on credit. There are additional cost to selling on credits. We'll consider these in the next module. - Now you and I have some personal experience with selling…
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