THE FACTORS YOUR CLIENTS SHOULD CONSIDER.
While offering credit is a valid way for your clients to
increase their customer base and the demand for their goods and
services, it is important as their advisors to remind them to
manage the risks of offering credit and how this can affect their
cash flow and their solvency.
There are several risks business owners/directors must consider
when deciding to offer credit. The two primary risks are as
follows:
- Reduction in liquidity which in turn, may affect a
business's ability to pay its debt as well as purchase required
assets or invest in new products or processes.
- Permanent loss of revenue if a service or product is provided
to a recipient who doesn't have the ability to make payment.
This is quite common in industries such as construction where
significant time is invested and a service is provided before
payment is made
