3 Unit 10 Selling on Credit
There are few axioms in the world of business, but one of them is "if you sell on credit you will increase sales, even to the same customers to whom you previously sold for cash only". This alluring proposition has great appeal to small business firms. Sales are the foundation of profits, and anything that will help to increase sales commands the attention of competent business owners.
Trade credit is credit extended from one business firm to another. Consumer credit is credit given by retailers to their customers, who are the final users of the products or services sold. Sales by manufacturers and wholesalers are almost always made on a credit basis. Retail sales on credit are about half of the total retail sales in the country.
Our business world could not operate without credit. There is not enough currency and coin in the country to finance business transactions carried on every day. Total bank deposits exceed the actual money in the country several times over. The key is credit extended throughout the economy. A good credit standing is essential to business success. Business owners must look for good credit standing of firms or individuals to whom they grant credit.
There are at least four basic types of consumer credit accounts.
OPEN ACCOUNTS1 are ordinary charge accounts2. With this type of account the customer charges all purchases throughout the month and is expected to pay the total charges when a statement3 is sent by the firm. Most firms send out statements monthly, but full payment each month is not insisted upon.
REVOLVING ACCOUNTS4. It would appear that revolving accounts were designed for customers who live with external indebtedness5. The firm sets an upper limit to the amount that may be charged, and any purchases below that limit are automatically approved for credit sale. The customer must then pay a certain amount or a specified percentage of the total charges at the end of each month.
INSTALLMENT ACCOUNTS6 were specifically designed to make possible the sale on credit of larger purchases. The customer makes a down payment7, preferably at least 20 % of the total purchase price, and the balance is spread over a monthly payment plan. Good business practice limits such payments to not more than 3 years. Many installment accounts are for a shorter period. Carrying charges are added to the amount due8, usually up to 1 percent per month.
BUDGET ACCOUNTS9 are designed to handle payments that ordinarily fall between short-term open accounts and longer-term installment accounts. No down payment is required, and customers are normally given 3 months to remit the total price in equal payments. Customers are expected to make payments without reminders in the form of statements from the seller.
Credit customers who do not pay on schedule cause the firm several problems. The best course of action when accounts become overdue is to minimize the eventual losses by taking the following steps:
– Send a second statement 60 days from purchase. This could include a note to the effect that10 "Perhaps our first statement was not received or was mislaid. We know you would not want your credit status impaired".
– Telephone the customer or send a telegram in 70 days, asking the reasons for nonpayment.
– Send a third statement in 75 days. Include a note to the effect that "Your credit status is at stake. We are forced to turn over accounts 75 days old to our collection agency or attorney".
– Send a registered letter in 80 days, including a certified copy of the statement, saying that the account is being referred to the collection agency.
– Turn the account over to the agency or the firm's attorney for legal action in 90 days.
Small firm owners usually have an advantage over large firm owners in this situation, since they know their customers better. If this is so, they can usually accomplish more through personal contact with the customer than by resorting to the steps just described. But the possible delinquent situation should always be anticipated by picking the right credit customers in the first contact.
Notes: 1. открытый счет (амер.); "текущий счёт (англ.); 2. кредит по открытому счёту; 3. выписка счёта, расчёт; 4. автоматически возобновляемый счёт; 5. задолженность; 6. счёт для уплаты в рассрочку; 7. первый взнос; 8. причитающаяся сумма; 9. бюджетный счёт, счёт потребительского кредита; 10. следующего содержания