Page 486 - Business Principles and Management

Chapter

Credit and Insurance 18

18.1 Credit Principles and Practices

18.2 Managing Credit

18.3 Insurance Principles
18.4 Types of Business Insurance

RE ALITY CHECK

Setbacks for Sandra

andra Gilbert started her jewelry business six months ago on a cash-only
basis. She reasoned that her large inventory took up much of her capital
Sas well as the time needed to manage it. “Credit card companies charge
new small businesses too much. Besides, because my jewelry is quite expen-
sive, most customers won’t use credit cards for their purchases. If I use my
own credit system, customers will have to fill out a long application that will
then take a few days to get approved. Customers won’t want to wait several
days to take their purchase home. I think they would rather pay cash. If they
have the money, they can get cash from their bank to pay. If they don’t have
the money, I don’t want them as customers.”
Contrary to her expectations, her business did not pick up very fast.
Because of the slow sales, she was unable to make a profit. Many cus-
tomers stopped in to look at her jewelry and always made positive com-
ments about both the designs and the prices. But they would invariably
say they would think about it and then never return to make the pur-
chase. By word of mouth, she learned that some customers were not
returning because competitors accepted credit cards or offered credit terms.
She decided she had made a mistake. She quickly approached her bank
about setting up a credit service for her business, even though it cost more
money than she wanted to spend. To pay for it she had to raise her prices.
The credit program seemed to be working. Her sales increased, and she
was making a small profit. Sandra was just beginning to feel good about the
future of the business when she was faced with an even more serious prob-
lem. An employee left a storage area unlocked. Several custom pieces of
jewelry she had just finished to fill customer orders were missing. She had
purchased an insurance policy that protected her merchandise against fire
damage and burglary, but the policy didn’t cover this type of loss. Without
adequate coverage, she would have to pay the cost of the missing jewelry
and would have to redo the orders. She wasn’t sure the customers would
wait for the orders or that she could afford the losses.

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