Page 517 - Business Principles and Management

C HAPTER 18 A SSESSMENT

CASE IN POINT

CASE 18-1: Is Credit for Everyone?
Alissa, a recent college graduate, has just accepted a job in the credit de-
partment of Kriall’s, a fashion-oriented clothing store with an exclusive
image. Alissa feels that even though most customers can pay for their
merchandise with cash, check, or debit card, credit is very convenient.
Alissa met Tay-Von at the new-employee orientation meeting when they
both started working for Kriall’s. Tay-Von is in the management training
program. He worked in the collections department of a discount store
while in college and formed some strong opinions about the use of credit
by consumers.
Over lunch one day, Alissa and Tay-Von discussed their views on
credit. Tay-Von started the conversation by saying that he couldn’t un-
derstand why a store like Kriall’s, which attracted exclusive, well-to-do
customers, had to offer credit. The customers certainly had enough
money to pay cash, and the cost of the credit operations reduced the
business’s profits.
Tay-Von said, “I just reviewed the aging-of-accounts report for our
store. I’m amazed at how many customers are always late paying their
bills. And the notes accompanying the report usually say the customer sim-
ply forgot to pay. Yet even when they’re late with their payments, we con-
tinue to offer them credit just to keep them from getting upset with our
store. Why, one of our customers, who is the CEO of a large company, is
now 60 days late paying for two very expensive suits he purchased.”
“I’m sure it was just an oversight,” Alissa said. “I expect he is very
busy or traveling and just hasn’t remembered to pay the bill.”
“Not so,” said Tay-Von. “We’ve sent him two notices 30 days apart
by certified mail. It’s no oversight. He just knows he can pay whenever
he wants.” Tay-Von could not resist adding, “Now that you’ve been
working here, do you still believe credit is so great for everyone? If the
well-to-do can’t pay on time, what about the people who don’t have that
much money? How do they pay their bills? Credit encourages people
to buy over their heads. Without credit, everyone would be better off.
Stores wouldn’t have to worry about collecting debts, and customers
would buy only what they need.”
“And you and I wouldn’t have jobs,” Alissa retorted. “People shop
in this store because we offer credit. And we charge interest if they don’t
pay on time, so when they do pay we cover our costs. Credit is good for
business and good for consumers. Both rich and poor people can learn to
use credit wisely.”

THINK CRITICALLY
1. Do you agree more with Tay-Von or Alissa? Justify your choice.
2. Do you feel that people tend to take advantage of the credit offered
by businesses even when they have the money to pay?
3. Do businesses have a responsibility to help their customers use
credit wisely? Why or why not?

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