Question

Explain the advantages and disadvantages of lenient and strict protocols for both credits and collections. If you were the office manager of small physician’s office, would you have both lenient, both strict, or a combination? Would your position change if you were running a large hospital? Explain your reasons why.

Answer 1

Every small-business owner needs to decide whether or not it is in his best interest to start taking customer payments on a credit basis. While dealing with cash only is certainly the easiest and quickest way to get paid for goods or services, in today’s fast-paced and electronic world many commercial customers are using credit for payments. This includes whipping out the corporate credit card or buying supplies on a monthly line of credit with vendors.Whether or not the pros and cons of a strict credit policy are worth the investment and hassle is up to you, but it's worth at least knowing the advantages and disadvantages of credit sales.

Payment in different currencies. One of the advantages of a credit policy that accepts electronic forms of payment such as credit cards is that the math is already done for you. Currency transfer is usually quite easy, as the payment to you will be in U.S. dollars while the person making the purchase will get charged in their own currency.

This makes it easier to accept payment from people in foreign countries or visiting tourists.

Ease of use. Using electronic forms of credit are extremely easy these days with the advent of such point-of-sale technologies as Square and Apple Pay. For services such as Square, when you sign up the company will supply you with a point-of-sale card reader that can be set up very quickly.

Also, with phone apps such as Venmo, Zelle and countless others that allow instant online payment transfer, the days of needing a cash register are long gone.

Customers more likely to spend more. Studies show that people are much more prone to overspending and making impulse purchases when they have a form of credit in their wallets as opposed to a wad of cash. Psychologically, it’s much more difficult to watch cash disappear.

While some customers will always prefer to deal with cash, one of the advantages of a credit policy is that you open yourself up to a whole demographic of customers who will be more willing to pay for your goods and services if you accept credit.

Convenient recordkeeping. That paper trail you’ve been trying to keep on your customers becomes much easier when you have an itemized list of credit transactions your bank can provide on monthly statements. When it comes time to balance the books and pay taxes, most customer transactions done through a bank can be easily downloaded to financial programs such as QuickBooks and FreshBooks.