Question

Pretend you own your own company which makes T-Shirts to sell to area souvenir shops, why would you be interested in taking a cut in profit for offering credit terms to your retailer customers?

Answer 1

I will be interested in taking a cut in profit for offering credit terms to retail customers dute to following reasons:

1.I will be following a retail strategy to attract the customers by understanding where they stand in the market and what are there credit preferences and will try to match their preferences. Where there is high competition ,it is better to check the competitor's move regarding credit. Providing credit facilities in accordance with the terms provided by other competitors may lead to reduction in profits, at the same time it will increase more customers who can't pay immediate cash, hence leading to increase in sales, and thereby profits.

2. May be this strategy will decrease profit in short run and provision for doubtful may also occur. But in long term profit will increase due to increase in customers.

3.Customers will be more interested in buying from us because better credit terms will make them feel more reliable towards company. Degree of customer's loyalty will increase.

4. Giving more discounts on payments may decrease the profits but they will be justified with increased volume in sales as customers will feel more comfortable in buying at lower rate with better credit terms.

5. These strategies , if went successful mey lead to increase in market share in retail business of garments in the industry.

6. Increasing better credit terms may increase the chances of gaining customer's trust as they will feel more controlled over their funds.