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Turnovers are always a very huge figures which sometimes cannot be relied upon based on fact that some credit sales must have been made during the transaction year which would not be recovered by organisation during that same accounting year. And it would present an unreliable figure of the turnover of company in the financial statement.
If the market offers30 days credit and you are offering none, you are under-achieving your sales. Credit sales are an integral part of 'sales'.
However, if you are offering45 days credit when the market offers30 day credit, you are over-achieving.
Do you have enough working capital to support (45 days) credit sales? If you do, then you can go ahead.
Longer credit helps achieve higher sales, always. Also, you can price higher for the longer credit period sales, thus increasing the margin of profit.
As for recovery of debts, you certainly have to have a credit control policy.
As the credit sales helps the company to raise his turnover. As sales ( as turnover) appears in Income Statement, and it reveals income of the company after deducting all its expenses for a specifics period, which moves in upward direction.
As credit sales has positive impact on turnover, which further indicates that the company is in growing stage by increasing the number of customers.
As sales increases, purchases increase too.
it also has positive effect on inventory turn over ratio.
but credit sales has neagaive impact in the form of bad debts. but u can minimize it through your credit control policy. On the other hand, it will increase ur assets on balance sheet in the form "receivable"
if debtors would not able to repay the amount, it might become a bad debt. there is also a possibility of having difficulty in the day to day businesss operation because of lack of working capital as the credit sales is d integral part of revenue.
Simple...
Without credit, business operations could eventually come to a stop. Credit transactions allow customers to immediately purchase items they cannot pay for at that moment. For example, without credit, many people would not be able to purchase a car.
If giving things out on credit were not important then this strategy would not be prevalent today. Credit sales also makes it convenient to make spontaneous purchases without the need to carry large sums of cash or cheques.
Therefore, credit if provided prudently clearly would help increase company turnover.
Credit sales do attract the customer towards the organisation as consumers beleive the loyality towards the organisation but however we can say it has drawbacks also.going in a bad debt in some of cases is the examples..
In credit sales, payment will be released by the customers after the credit period offered by you. But offering to sell on credit is of value to the customers. If you offer credit, other things remaining the same, customers would prefer to buy from you as compared to your competitors taking advance payment. So it will help in improving your sales turnover. But for safety, offer secured credit.
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