Credit Sales Collections Memo

To: Paul Smith

From:

CC:

Date: 4/28/2011

Re: Credit Sales and Collections

It has already been acknowledged that you have an understanding that credit sales are sales in which you allow customers to receive product and pay at a later date. Paul, in your case, you will be extending this offer to your wholesale customers. While this is a good service to offer, in hopes of having more customers and increasing your revenue, there are two cost of extending credit to your customers; bad debt expense and record-keeping expense.

Allowing your wholesale customers to receive the products that they need, and pay at the end of the month can cause you to have negative revenue, if customers fail to pay. “Business experience indicates that the older and account receivable becomes, the less likely it is to be paid” (Edmonds, Olds, McNair, & Tsay, 2010, p. 185-186). Not only is bad debt expense an important factor, but record-keeping expenses are also a necessary factor that should be thought about.

Your company is not solely dependent upon you, your staff helps ensure that your company stays afloat. By extending credit sales to your wholesale customers, you increase the risk of not having adequate funds to keep your business running smoothly; these same problems hold true for allowing the use of credit cards. If you choose to go forward with these options, I would ask you to consider lessening the time for payoffs, and/or offering some form of incentive, such as discounts on future purchases and/or a free product with the next purchase, for those people who pay out their accounts within the first 14 days.

Respectfully,

Aiyanna Fitzgerald

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