Select all that applyWhich of the following are disadvantages to extending credit to customers? (Check all that apply.)Multiple select question.Increased bad debt costsDelayed receipts of cashIncreased credit ratingsIncreased salesIncreased wage costs
Question
Select all that applyWhich of the following are disadvantages to extending credit to customers? (Check all that apply.)Multiple select question.Increased bad debt costsDelayed receipts of cashIncreased credit ratingsIncreased salesIncreased wage costs
Solution
The disadvantages to extending credit to customers from the options provided are:
- Increased bad debt costs
- Delayed receipts of cash
- Increased wage costs
These are considered disadvantages because:
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Increased bad debt costs: When a business extends credit to customers, there's always a risk that some customers will not pay back the money they owe, leading to increased bad debt costs.
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Delayed receipts of cash: When a business sells goods or services on credit, it means that it will not receive payment immediately. This can lead to cash flow problems, especially for small businesses.
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Increased wage costs: If a business extends credit to many customers, it may need to hire additional staff to manage its accounts receivable, leading to increased wage costs.
The other two options, "Increased credit ratings" and "Increased sales", are generally considered advantages, not disadvantages, of extending credit to customers. Increased credit ratings can improve a business's ability to borrow money, and increased sales can lead to higher profits.
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