Question

In: Accounting

Scenario You are a partner in Creative Crafts, a small shop in your town’s historic district....

Scenario

You are a partner in Creative Crafts, a small shop in your town’s historic district. The district attracts many tourists from nearby states as well as regular customers from town. During your first year, your monthly sales average was about $25,000.

You and your partners invested all your personal savings in the shop. Business has been better than you forecasted, but you believe that sales and profits could have been even better. You sell on a cash-only basis. Your motto has been, “In God we trust; all others pay cash.” You are wondering about continuing this policy since one in four people who comes into the store leaves without buying when told you don’t accept credit cards.

You and your partners are trying to decide how to go about offering credit to your customers, if you should at all. None of you has experience in dealing with credit, but you each have your own ideas on the matter.

Questions:

Why would you not sell on credit in the first place?
Why do you think the lack of credit caused some shoppers not to buy from you?
What alternatives for offering credit can you and your partners suggest? Which alternative do you recommend? Justify your answer.

Solutions

Expert Solution

1. I would not sell on credit in the first place because it is a tedious task to make recoveries and it requires constant follow ups with debtors, this will detract focus from the business and cause unneccesary difficulties. Also making recoveries from out of state customers will be cumbersome.

2. Many shoppers especially tourists don't like to carry too much cash out of fear for personal safety or prefer using cashless modes of payment and hence rely majorly on their credit cards for making purchases. Hence these shoppers have no alternative than to pay using credit cards.

3. Their alternatives becoming a payment merchant with visa, mastercard or any other payment processing company and accept credit cards, debit cards, online wallets, apple pay, samsung pay, etc.. This ways customers can pay using their preferred modes. I would recommend becoming a payment merchant with visa and getting a POS terminal set up to accept credit cards and other digital payments.


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