ABSTRACT
Money costs money. That principle has to be the foundation upon which all credit transactions are based – that is to say that the granting of credit, though beneficial for business as a whole, is not without cost, either to the supplier or to the buyer, or to both. It follows therefore that the process of granting credit to customers, and the tasks of risk assessment and risk analysis, amount to no more than weighing the benefits of granting credit against the cost to the supplier of doing so. Furthermore, that cost element is not restricted to non-payment, or bad debt losses, but applies to cost of the credit period itself and the cost incurred in late payment. It should always be remembered that there is an inevitable time delay between funds being expended by the seller in acquiring raw materials, paying wages and so on for the production and delivery of the goods and the receipt of funds from the buyer in respect of those goods or services. The cost can be passed on in prices or absorbed by the seller, but it can never be ignored.
