Actually, once you have made a sale, if you allow customers extended credit terms you are basically saying it is OK to leave your money in their bank accounts.

The major risk is over-trading. If you have to pay for your goods and services on terms less generous than those you offer your customers, you will run out of spending power unless you have substantial cash reserves.

COVID and other economic challenges have bleached away many rainy-day funds, and so, our ability to leave cash in customers’ bank accounts may place us in a position where we basically become cash insolvent, even if we are profitable and have surplus net assets.

The next time you are tempted to extend credit in order to win a sale, take advice. We can help you consider the wider consequences of your sales strategy and its impact on cash flow.