Credit sales can be traced back to ancient times when bartering and direct exchanges were the primary forms of trade.
As societies evolved and economies became more complex, the need for a medium of exchange arose, leading to the invention of money.
With the advent of money, the concept of extending credit began to emerge.
Credit sales, also known as buying on credit, involve allowing customers to acquire goods or services immediately and pay for them over time, rather than requiring immediate payment.
This practice enabled individuals who lacked sufficient funds to make purchases based on future income or the promise of repayment.
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In recent years, the notion, which has been popular among big businesses, has been adopted by Small and Medium sized Entrepreneurs (SMEs) who are now lamenting stunted growth from the same.
Reyhema Moyo, a Mangochi-based dedicated small-scale business operator, is facing a significant challenge that has hindered the growth of her kids’ merchandise business.
She imports kids’ wear from South Africa and sells to individual customers in the vicinity.
The issue at hand is the alarming rate of bad loans, as approximately 50 percent of her customers who purchased children’s clothes on credit have been unable to repay their debts.
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This unfortunate situation has severely affected her business capital and created obstacles to the expansion of her enterprise.
Over time, the failure of customers to fulfil their credit obligations has drained her resources and impeded her ability to reinvest in the business. Recognizing the urgency to address this issue, Moyo decided to take a bold step and implement a new approach to sales.
“I made the decision to cease offering credit sales for my stock. Consequently, this change has also led to an increase in the inventory turnover period, enabling customers to make more informed decisions about their purchases.
“I introduced layby services as an alternative payment option for my clientele. With this new service, customers can pay for their desired items in instalments before collecting them,” Moyo said.
According to SME Chamber Executive Director James Chiutsi, Moyo’s case is one among many.
It is true that the economy is not doing well which has affected business performance and has resulted in an increase in bad loans and delayed payment on goods supplied and services rendered.
He said the government is the major culprit.
“The problem does affect SMEs growth because they really depend on the funds generated within the business for re-investment as there are limited sources of financing,” Chiutsi said.
Small and Medium Enterprises Development Institute (Smedi) Business Information and Advisory Services Manager Elias Kanongola said bad debt reduces liquidity for SMEs, which may eventually lead to closure of the business which in turn reduces wealth and job creation.
He said bad debts cause low liquidity levels leading to business closure, as a result of failure to pay creditors, failure to pay staff salaries in time and failure to pay loans.
“When an SME has bad debts, paying creditors becomes a problem. Creditors that are not paid lose trust in SMEs such that future supply of goods and services on credit becomes a problem. This affects business stock levels in the form of raw materials or finished goods.
“Low stock levels create customer dissatisfaction. Customer dissatisfaction reduces customer loyalty thereby causing customers to start buying from competitors. Such competition reduces SMEs sales volumes and can lead to low, no or negative profitability. When a business persistently makes losses, it can finally close down,” Kanongola said.
He added that it is imperative and important for debtors to be paying SMEs within 30 days so that they become a vibrant sector, instrumental to create wealth and jobs thereby contributing positively to the economic development and growth of the nation.
