Nowadays, a lot of big corporations and businesses trade on the basis of credit, rather than using the process of money actually changing hands. This is because offering credit terms is more convenient and it is also competitive. Since large transactions which involve heavy sums cannot always be facilitated by cash payments, credit is a feasible and easier option. The credit system has been integrated not only in the business world but also in our day to day lives, in the form of credit cards, as in the consumer market, credit is not offered directly, but is offered through the medium of bank services, and is finally executed by the use of credit cards. In the corporate market, business transactions take place where the purchase of goods or the use of the service renders a payment that is to be settled in the future.
This happens between businesses and the organisation’s concerned are thus given the terms debtor and creditor. The debtor is the person who owes the money, and the creditor is the party to whom the money is owed. While offering and using credit terms is very common, there are a lot of problems involved in the process, mainly managing the debts and actually recovering them, as the debtor might sometimes falter on the payment. The debtor himself also faces the problem of settling the payment, as there is often a lot of pressure surrounding him or her regarding the payment.
On the business’s side, the biggest concern and priority is debt recovery Gold Cast. This is because, while a business may make a profit due to the credit sales, they may face cash flow problems due to the fact that no actual cash has flowed into the business. This can also affect the liquidity and working capital position. Failure to recover debts can also lead to bad debts, where the debts are written off as non recoverable. Heavy amounts of bad debts could lead to losses for the business, and a hindrance to expansion.Defaulting on debts could cause huge issues for the debtor. For one, he would lose his credit worthiness with the business, meaning that in the future, the business would be reluctant or may even refuse to give credit to this particular customer. In addition to that, the debtor may also face legal action, and may even lose their privacy due to organisation using the skip trace method to locate debtors who have defaulted on their payments.It is for these reasons that both parties should be careful when trading on credit.