Question

One of Natalie’s friends, Curtis Lesperance, runs a coffee shop where he sells specialty coffees and prepares and sells muffins and cookies. He is eager to buy one of Natalie’s fine European mixers, which would enable him to make larger batches of muffins and cookies. However, Curtis cannot afford to pay for the mixer for at least 30 days. He asks Natalie if she would be willing to sell him the mixer on credit.

Answer the following questions.

1.   “Curtis has provided me with a set of his most recent financial statements. What calculations should I do with the data from these statements, and how will the results help me decide if I should extend credit to Curtis?”

2.   “Is there an alternative other than extending credit to Curtis for 30 days?”

3.   “I am thinking seriously about permitting my customers to use credit cards. What are some of the advantages and disadvantages of letting my customers pay by credit card?”

Answer 1

1. As discussed in the case above, Curtis is willing to take the European mixers for credit for 30 days after which he would pay the amount to Natalie. Now here she will have to decide whether she would extend the credit to him or not.

As given in the question thet Curtis has provided her with his recent financial statements, it would help her decide whether it's profitable to give mixers on credit or not. For making such decisions, the financial statements are useful as Natalie can come to know the financial position of the company of Curtis and can judge if the company is able to make that profit so that her credit can be fulfilled.

Financial statements help to look if the company has any other debts on the other creditors to which company is liable to pay. If such is the condition it is doubtful to lend credit to him. So financial statements are useful to analyse if credit giving is profitable for her.

If calculations are to considered, all the amount of accounts payable of the company is calculated and if the company has more liabilities, this information is useful as to judge that company is in huge loss and giving credit is not good for her.

2. Yes, there is an alternative to this. There should be a condition made to Curtis that whatever he is earning from the new machine, half of the income would be given to her as he had taken the mixers on credit for the time the total credit is not fulfilled by him. This way she will have a security for her money as well as she can also help her friend in solving his issue. This is one of the alternative in the place of providing mixers on credit.

3. If we discuss about using the credit cards, it has both merits and demerits.

If the customers make use of the credit cards, they are able to make payments even if they have shortage of money. This let customer reduce their inability to pay or reduce hinderence in their way for continuing any seevices and they can increase their purchasing power. Customers also get various other benefits when they use credit cards like they get reward points and various discount offers by which customers are benefitted.

But on the other side, if the customers are not able to pay the credits on time they can put themselves in huge debts. Sometimes customers have to pay interest charges for using credit cards which in turn costs them more. Also one major problem is that once payments are not done on time, it could affect the cibil score of an individual which in future may lead to problems like banks would never prefer to give you loans for any of your purpose. Also one individual can be made to be removed from his job or service if the company comes to know that the cibil is bad of any particular individual and this cannot be entertained for that organization.

So these types of problems can occur when one uses the credit cards. So it has benefits as well as demerits. Thus, customers must keep in mind that if they are using the credit card, they have to pay the bill on time before any charges are being posted on the individual.