60-day credit🍦
When a company sells something to a customer on credit basis i.e the customer will pay after a specific timeline. Even though making the sale added revenue and might've made profit as well but there's no cash received yet. It will come later and in this case 60 days later.
Now catch is companies still have to pay monthly wages, rent, buy raw materials for next orders. If the cash runs out and the customer hasn't paid yet. There needs to be a way to avoid the business failing because of lack of cash.
Because sometimes
Sales are increasing
Profit margins are positive
But cash runs out and business can't continue.
Credit sales increase revenue first but cash later
Why offer sales on credit in the first place❔
Imagine ✨ you are a distributor or retailer. Not the manufacturer.
You buy some goods from the manufacturer and plan to sell in to your customers.
If the manufacturer goes : "Give me money immediately for what you bought from me💢"
You'd go : "tf dude, let me make some money first by selling it to MY customers, cassh doesn't grow on trees. Wait a little. Maybe 60 days"
That's where the 60 days credit comes from.
From the buyers perspective, credit is a requirement not a luxury.
Now how this even starts❔from the company's pov 🫦
At some point they realize, if i offer credit customers are going to prefer me. So they offer better credit terms 30, 90, 60 days. Not because they like to but because it wins orders.
It's usually done by large firms with cash reserves or firms with bank support.
At some point offering credit becomes so normal that not offering credit makes companies lose customers i.e.they go to someone that gives credit.
Thus it is no longer a competitive advantage but an entry ticket.
Hehe
