What are credit sales?

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    Credit control & accounts receivables

    What are credit sales?

    Offering credit to business customers is a common practice among many businesses. Credit sales are a type of sale in which the customer is allowed to purchase goods or services now and pay for them later.

    As with all types of credit, there are several advantages and disadvantages to offering credit sales.

    The primary advantage is that it allows customers to purchase goods or services they may not otherwise be able to afford if they had to pay upfront. This can help businesses increase their customer base by allowing them to offer payment plans, which makes them more affordable for customers.

    On the downside, offering credit sales still comes with risks. If customers are unable to repay their debts on time, businesses may have to take legal action in order to recoup the money owed.

    In this article, we'll discuss the advantages and disadvantages of offering credit sales, as well as some tips for businesses to protect themselves from any potential risks.


    What are credit sales?


    Business credit sales are transactions in which a customer agrees to pay for goods or services at a later date.

    This type of sale is often used to finance large purchases or when a customer does not have the cash on hand to pay for an item outright. In some cases, the customer may be required to provide a down payment up front, with the remainder to be paid at a later date.

    Business credit sales are typically made between businesses, although they can also be made between a business and an individual consumer. Credit sales often involve the issuance of an invoice that outlines expectations for payment. On this invoice, businesses may also list any applicable interest or late fees that are associated with a delayed payment.

    Businesses will typically enter into credit sales agreements with customers they trust and offer extended payment terms in order to increase their customer base and attract more business.

    There are a few risks associated with this type of sale, such as the possibility that the customer will default on their payments, but when properly managed, they can be a valuable tool for businesses.


    The benefits of credit sales for businesses


    Credit sales can be a valuable tool for businesses, providing a way to increase sales and expand their customer base.

    When customers purchase on credit, businesses can receive payments over time, rather than all at once. This allows customers who do not have the capital to purchase goods and services upfront to still be able to access them. This, in turn, can increase the number of customers a business has, allowing it to grow and expand its offerings.

    Additionally, credit sales also create an incentive for customers to make larger purchases, as they are able to spread out payments over a period of time. This can be beneficial for businesses, as customers are likely to spend more if they are not paying all at once.

    Offering credit can help businesses attract new customers who may not have otherwise made a purchase by offering them an alternative to cash payments.

    It can also help businesses maintain relationships with existing customers and encourage repeat business, as customers may be more likely to purchase again if they have access to credit.

    Credit sales also give businesses the opportunity to establish relationships with new customers and build loyalty. When customers trust a business and feel positive about the experience, they are more likely to return in the future.

    Credit sales can also improve customer satisfaction by allowing them to purchase the goods and services they need without having to worry about immediate payment.

    For these reasons, credit sales can be an advantageous option for businesses of all sizes.


    The risks associated with credit sales


    Credit sales can be a great way to boost your business, but there are also some risks associated with them.

    If your customers don't pay their invoices on time, you could end up with a lot of unpaid invoices. This can hurt your business financially and negatively impact your cash flow.

    You should also be aware that some customers may default on their payments or even file for bankruptcy, leaving you with no recourse to recoup your losses.

    To minimize the risks associated with credit sales, it's important to establish clear payment terms and conditions upfront. You should also keep track of customer payment histories and take steps to ensure payments are made on time.

    If you extend too much credit, you could find yourself in financial trouble if too many customers default on their payments. So, it's important to carefully consider the risks before extending credit to customers.

    Credit checking is an important tool to help you assess your customers' creditworthiness. You may decide to use a credit checking agency or another third-party service provider to obtain information about the customer’s financial history and current credit status.

    By implementing these strategies, you can ensure that any commercial credit provided to customers is well-managed and secure. This will help protect your business from financial loss and maintain a healthy relationship with your customers.


    Tips for avoiding bad debt when selling on credit


    Bad debt is a big problem for businesses that sell on credit. When customers don't pay their bills, it can put a strain on your cash flow and even put you out of business.

    There are a few things you can do to reduce the risk of bad debt, though.

    First, be careful about who you extend credit to. Do some research on potential customers to make sure they're likely to pay their bills. Credit checking services can provide you with a credit rating for potential customers.

    Second, ask for a deposit before goods or services are delivered if the customer is new to your business or has a low credit score. You may also want to consider asking for an upfront payment in full from customers who have higher risk ratings.

    Third, set clear terms and conditions of credit, including payment deadlines and charges for late payments. You should also consider using a debt collection service if customers fail to pay their bills on time.

    Finally, review your credit control policies regularly. Make sure they are up-to-date with the latest regulations and best practices and make sure you’re being consistent with your credit decisions. This will help you maintain a healthy relationship with your customers, and protect your business from bad debt.

    By following these tips, you’ll be well on your way to creating a sound credit policy that helps ensure the financial health of your business for years to come.


    Take advantage of automation to streamline your credit sales


    Credit sales can be a great way to increase cash flow and grow your business. However, it's important to understand how they work and the risks involved before offering them to your customers.

    By being aware of the potential problems and taking steps to avoid them, you can reduce the risk of bad debt and keep your business healthy.

    One of the best ways to manage your credit sales is to use an automated system.

    Automation platforms like Chaser allow you to credit-check customers, automate invoicing and payment chasing, and keep control of receivables.

    Automated credit control not only reduces your risk but also saves you time and money.

    Book a demo with Chaser today to see how easy it is to manage your credit sales with our platform.

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