please comment on post The major advantage of extending credit sales is that it will increase sales revenue. This is because customers who can't produce cash today are still able to buy the good or service of their choice.

Extending credit sales is usually a good idea for businesses, but there are a few important factors to consider. First, the business needs sufficient cash flow to account for Cost of Goods Sold (inventory). Customers' payments may delayed, but suppliers still have to get paid on time. Thus, the business has to be keenly aware of its cash levels.

This is especially true for businesses that sell large durable goods at low volumes, like airplane engines. If a customer is unable to pay its debt, this bad debt may have a big affect on cash levels available for suppliers and investment in other activities.

The most important factor to consider when deciding whether to offer credit sales is the anticipated bad debt expense. This is the percentage of credit sales that are not ultimately paid. The business will be forced to eventually write this off against the account receivables balance (credit). This may lead to a lower credit rating. A smaller account receivable balance, which is considered liquid, is not good if you wish to borrow against that balance (secured borrowing).

Ultimately, a business has to decide whether 1) the increase in sales revenue will be greater than the bad debt expense arising from extending credit to customers; and 2) whether the increase in sales revenue is sufficient to account for reduced and/or delayed cash flows.

It therefore goes without saying that the credit worthiness of customers should be evaluated before deciding to lend. Background checks and credit scores should be reviewed. The goal of course to minimize any future bad debt expense.