10.12 Tighter credit control

Question 1

What is “tighter credit control” strategy?

Answer 1

A strategy employed by businesses, particularly manufacturers, and retailing to ensure sales are promptly realised as cash or liquid resources.

Question 2

What are the advantages of tighter credit control?

Answer 2

• frees up cash
• creates savings in opportunity cost (interest)
• reduces cost of credit control and risk of losses through bad debts

Question 3

What are the disadvantages of tighter credit control?

Answer 3

• risk losing competitive edge over creditors providing credit to their customers (potential loss of customers)
• reduced sales and profit (from loss of customers)