Question

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I believe Olin should consider to allow credit sales. Anadvantage would be is an increase in sales by offering to purchaseon credit. It also show that you respect your customers by trustingthem to pay for their purchases at a later time. Olin will gain therespect of his current customers while gaining new customers fromother competitors and creating competition.

There are some disadvantages to allowing credit sales. Cash flowwill be affected due to the delay in cash coming in according tothe credit terms. The cash that used to be available before willnot be there to pay bills. It's also just an overall huge risk totake. Customers credit history needs to be checked before takingthe risk. Even if the customer does have a good credit history itcan still lead to bad debts. If the collection agency isn't able toobtain the money then it is an expense to the business for theirpurchase. Accounts receivable will become a new account to fund.Accounts receivable will need to be calculated and updatedfrequently. If customers don't pay on time an invoice should besent out which will create more work.

Olin should make an estimate on how much revenue he willactually gain with the huge risk he is taking by allowing creditsales.