Allowing customers to receive goods and services now and pay for these latter is another use of the word Credit.

Allowing customers to receive goods and services now and pay for these latter is another use of the word Credit. Discuss why a company would provide goods and services now and allow someone to pay latter. What factors should a company consider when allowing a customer to postpone payment? When should a company consider that some customers are not going to honor their debt? How does the realization that some customers are not going to pay impact the operations of the company? Provide supportive statements for which method of accounting for Bad Debts is more appropriate under various situations.

Expert Solution

1) Why a company would provide goods and services now and allow someone to pay later?

There can be several reasons to this. For example, if the customer has a monopoly in some business area and the suppliers major share of revenue share is tagged to this customer for maintaining a good relationship raw materials can be often provided on credit. The company might also end up earning some interest in certain cases depending on what the agreement with customer dictates.

2)What factors should a company consider when allowing a customer to postpone payment?

The company should consider the following:

Creditworthiness of the customer
The impact that the business with the said customer has on the company's bottomline

jeff jeffy answered 2 years ago

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