Credit gives the consumer the opportunity to buy, purchase or acquire goods and services, and pay for them at a later date. This has its advantages and disadvantages as follows:
Advantages of credit trade
- Usually results in more customers than cash trade.
- Can charge more for goods to cover the risk of bad debt.
- Gain goodwill and loyalty of customers.
- People can buy goods and pay for them at a later date.
- Farmers can buy seeds and implements, and pay for them only after the harvest.
- Stimulates agricultural and industrial production and commerce.
- Can be used as a promotional tool.
- Increase the sales.
- Modest rates to be filled.
- can be a marketing tool
Disadvantages of credit trade
- Risk of bad debt.
- High administration expenses.
- People can buy more than they can afford.
- More working capital needed.
- Risk of Bankruptcy.
- May lose peace of mind.
Forms of credit
- Suppliers credit:
- Credit on ordinary open account
- Installment sales
- Bills of exchange
- Credit cards
- Contractor's credit
- Factoring of debtors
- Cash credit
- Cpf credits
- Exchange of product
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