tight cash flows place larger orders B u s i n e s s F i n a n c e

tight cash flows place larger orders B u s i n e s s F i n a n c e

R1

One of the key advantages of going public, is the financial benefit, which comes in the form of raising capital. This capital can be used for R&D, fund capital expenditure, or even be used to pay off existing debt. Another advantage is an increased public awareness of the company because IPOs often generate publicity by making their products known to a new group of potential customers. A disadvantage for smaller companies can be the cost of complying with regulatory requirements, which can be very high. Some of these additional costs can include the generation of financial reporting documents, audit fees, investor relation departments, and accounting oversight committees.

Balasubramaniam, K. (2020, August 28). What Are the Advantages and Disadvantages of a Company Going Public? Retrieved November 30, 2020, from https://smallbusiness.chron.com/advantages-disadva…

R5

The advantages and disadvantages of a liberal credit policy are the higher the sales. It will increase sales because customers may buy more without sending their own cash. This policy has policy needs credit limits to be high enough to let customers buy what they want on credit. Typical terms require payment after 30 days and charge interest after that date. Late payments are more comfortable for customers to buy on credit; those with tight cash flows place larger orders than they would otherwise but then make their payments late. They have little cash on hand; they instead pay low-interest rates(Markgraf, 2016).

Customer loyalty is the advantage of a liberal credit policy that you trust your customers to make payments. They have the convenience of ordering without having to make a payment first. A company must make it easy for your customers to place an order, and taking orders over the phone or by email helps apply and exploit the advantages of this policy. There will be losses, which is a disadvantage because you might not get your debts to pay from customers. A person can reduce this risk buying offering lower credit limits and making sure that customers can pay their debts (Markgraf, 2016).

If a customer is having payment problems, that company may get money out if they stay calm and polite but follow up frequently and persistently (Markgraf, 2016). Since the company allows purchases on easy credit, customers feel that the company trusts them and tends to be more loyal to the company. Late payments – due to the liberal credit policy, the company will allow late payment terms to the buyers. This will increase the company’s expenses giving easy credit to compensate for the money stuck; it will have to borrow from the market and pay interest on it. This interest expense is an additional expense and could be lowered or eliminated by doing away with a liberal credit policy.

Reference

Markgraf, B. (2016, October 26). Advantages & Disadvantages of a Liberal Credit Policy. Small Business – Chron.com. https://smallbusiness.chron.com/advantages-disadvantages-liberal-credit-policy-63743.html.

R6

When a company initiates a liberal credit policy, they do so under the premise that it will increase sales. A liberal policy does increase sales, and it also increases accounts receivable. The company is now extending their credit terms, giving customers a longer period of time to pay, and extending credit to customers on a more lenient basis, including customers who before would have been denied credit due to the non-lenient credit policies. A new business almost always has to have a liberal credit policy, in order to gain customers. However there are some downfalls to a credit policy. There is potential a customer may fail to pay on their credit accounts, or even worse, defaults or goes into bankruptcy, you may have to write off that loss, eating into your potential profits. There are transaction fees associated with using a credit policy. Most services will charge your business a fee, usually about 3%, to accept credit card transactions. If your business is large, or you accept a large number of credit accounts, you could be in for a lot of paperwork and the need for more staffing to handle your accounts. You may need to hire people to deal with sales, accounting and collections to track down late accounts or handle legal issues stemming from non-payment.