Is it a good or bad business practice for a company to extend credit? What is the rationale for either argument?

Extending Credit to Your Customers

By extending credit to your customers, you give them the option to purchase products or services today and pay for them at a later date. When your business accepts credit card payments and personal checks or invoices customers, it is essentially extending credit on the assumption that customers have the funds to pay for the transaction.

When you extend credit to customers through card payments, the credit card company manages the risk. When you extend credit through invoices or personal checks, you are responsible for verifying and accepting payments and managing the risks that come with them.

Extending credit through invoices is common in some industries such as construction or manufacturing, but may not be practical for every business. To decide if extending credit is right for your business, weigh the associated rewards and risks.

• The option of credit enables customers to focus less on prices, enhances customer relations, and has the potential to generate more sales.
• Extending credit costs money. When you sell something on credit, you will not have payment on hand and will need to temporarily recoup the cost from other areas of your operating capital.
• If customers don’t pay, you could be in for a long settlement process that may not end in your favor.
• Ask yourself if you have a significant business need to extend credit. Extending credit could be the factor that keeps your business afloat if it makes it easier for your customers to buy from you. Nevertheless, if it isn’t necessary it may not be worth the extra time and paperwork.

Extending credit to customers need not be weighed as a good or bad practice.It is a  business practice .in the normal course of business Financial management has to plan it carefully.