What is a potential disadvantage of offering credit to customers?

Offering credit to customers can potentially reduce immediate cash flow for a business. When a business extends credit, it allows customers to purchase goods or services now and pay for them later, which can lead to a delay in receiving cash inflows. This lag in cash flow may impact the business's ability to cover its own expenses, invest in opportunities, or manage day-to-day operations effectively.

While extending credit can indeed drive increased sales volume and improve customer relationships, these benefits can be accompanied by the challenge of managing receivables, especially if collections are not timely. The focus here is that the lack of immediate cash flow is a significant concern, as it may create liquidity issues even if sales appear to be healthy. Therefore, the reduction in immediate cash flow is a critical consideration for businesses weighing the decision to offer credit to customers.