ABC Corp. wants to avoid lengthy cash collection periods and, therefore, allows customers to pay with a national credit card, rather than extend credit to its customers directly. What is the downside to such a strategy?

Question

Sophie

Business

23 January, 12:39

ABC Corp. wants to avoid lengthy cash collection periods and, therefore, allows customers to pay with a national credit card, rather than extend credit to its customers directly. What is the downside to such a strategy?

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Answers (1)

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Cheeky · Answer 1

credit card companies charge fees that reduce profits

Explanation:

Based on the scenario being described within the question it can be said that the biggest downside to this strategy is that credit card companies charge fees that reduce profits. On a large company these fees become significant and therefore are also significant extra revenue that is being lost to the credit card companies themselves.