The main disadvantage to participating in credit card plans is cost, which may include card reading and verification machinery, fees, and a percentage of sales. Finally, credit card programs enable small businesses to receive payment more quickly than they could with an individual credit account system. The convenience of credit card purchases may also attract new business from travelers who do not wish to carry large sums of cash. In addition, customers are often tempted to spend more when they do not have to pay cash. Since most large retailers provide this service to customers, accepting credit cards helps small businesses compete for new customers and retain old ones. Allowing customers to pay with credit cards offers businesses a number of advantages. Many small businesses, particularly in the retail trade, choose to participate in major credit card plans. In the retail trade, furthermore, credit purchasers have proven to be less concerned with prices and inclined to buy more goods at one time. In addition, credit applications provide important information about these customers that can be used in mailing lists and promotional activities. But granting credit does offer the advantage of creating a strong base of regular customers. There is also the risk of incurring losses due to nonpayment, and of eroding cash flow to an extent that requires borrowing.
Some of the disadvantages of providing customers with credit include increasing the cost of operations and tying up capital that could be used elsewhere. While granting credit to customers can offer a small business a number of advantages, and in fact is a necessary arrangement for many types of business enterprises, it also involves risks. In other words, a company's approach toward extending credit should be as conservative as its approach toward other business activities.
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