Page 388 - Business Principles and Management

Chapter 14 • Implementing and Controlling

CREDIT Most businesses must be able to extend credit to customers. Businesses
also use credit when buying products from suppliers. If the company extends facts
credit to customers who do not pay their bills, the company loses money. Also, &
businesses that use credit too often when making purchases spend a great deal
of money on interest payments. Those payments add to the total cost of the figures
product and reduce profits.
Businesses must develop credit policies to reduce the amount of losses from
credit sales. They must check customers’ credit history carefully before offering Employee theft costs employ-
them credit. They must develop billing and collection procedures that will col- ers over $1 billion a week
lect most accounts on time. The age of an account is the number of days that and is a major cause of small-
payment is past due. Managers need to watch the age of each credit account. business bankruptcies. It is
The longer an account goes unpaid, the greater the chance that the company estimated that 3 out of every
will never collect the full payment. 10 employees engage in some
Companies should buy on credit when they will lose money if they don’t make theft and that 95 percent of
the purchase. If a production schedule cannot be maintained without the credit all businesses have an ongoing
purchase and if the price that can be charged for the sale of the product is high employee theft problem. Busi-
enough to cover the added cost, the credit purchase should be made. Companies nesses employ security special-
may also need credit to purchase expensive equipment or large orders of products ists, review cash handling and
and materials. But managers responsible for purchasing must control the amount inventory procedures, use secu-
of money the company owes to other businesses. It is easy to make too many pur- rity cameras and other moni-
chases on credit. When this happens, the interest charges are very high, and the toring devices, and prosecute
company may not have enough money to pay all of its debts on time. employees guilty of theft.
Managers must be sure bills are paid on time to protect the credit reputation
of the business. If the supplier offers a discount for paying cash, managers should
check to see if the company will benefit from taking advantage of the discount.
Before using credit, managers should study the credit terms to see what the final
cost will be. Credit can be a good business tool if used carefully but can harm the
business if not controlled.

THEFT Businesses can lose a great deal of money if products are stolen. Thefts
can occur in many parts of a business and can be done by employees as well as
by customers and others. Businesses can lose cash, merchandise, supplies, and
other resources due to theft. By establishing theft controls, businesses usually
are able to reduce losses.
The theft of merchandise from warehouses and stores is a major business con-
cern. Retail stores are the hardest hit by such losses. Retailers lose billions of dol-
lars annually due to crime, much of which is from theft of merchandise. Shoplifting
by customers and employees equals 6 percent or more of total sales each year for
the typical retailer. Much of the loss occurs during the end-of-year holiday shop-
ping season when stores are crowded and part-time workers are employed, but it
is an ongoing and serious problem throughout the year.
Many stores, warehouses, and trucks are burglarized during the night or when
merchandise is being transported. Security guards or special equipment are fre-
quently used to reduce the chances of such thefts. Many companies carry insur-
ance against losses, but with high loss rates the cost of insurance is very expensive.
A rapidly growing area of concern to businesses and consumers alike is com-
puter and Internet fraud. Business data and personal information are held in large
and small computer files. Financial records and personal identity information are
moved back and forth via the Internet. Data are exchanged online as part of many
business transactions. Businesses increasingly contract with specialized companies
to handle activities such as order processing, customer billing, accounting, and
personnel management. Businesses must carefully plan and review all procedures
for gathering, storing, and exchanging data to ensure the highest level of security
and to prevent data and identity theft.

375