Inflation's impact on a company's credit policy.

Written by:Diomer Antonio Galán Rincón.
Bachelor's Degree.Public Accounting / MSc.Science of Higher Education.

Author: @dgalan,through Power Point 2010 tool, and using public domain image Pixabay

The marketing of products has been affected by the economic situation of the country, the lack of foreign currency for exports, the shortage of goods, the high inflation rates, have become an obstacle for the good performance of any type of company.

This situation becomes more critical for companies that sell on credit, because the delay in recovering the investment in inventories, negatively affects their assets, however, some of these companies have been created under the concept of intermediation, where the main service is to find the product and sell it to the companies in need.

On the other hand, the development of organizations depends on internal and external factors. In relation to the former, the behavior of the workers, their organizational schemes, process system, are determinant to achieve the proposed goals and objectives. However, there are external elements that have an important impact on the good performance of companies, such as inflation, unemployment, economic growth, level of development.

Image taken from:Pixabay

According to Díaz (2009), inflation is understood as "the continuous and generalized growth of the prices of goods and services and productive factors of an economy over time".

In this context, for these companies, which do not work with large inventories of merchandise, but in investments, it is essential to seek strategies that allow them to remain in the market, in the face of the adversities experienced. Therefore, the price of inputs, raw materials, labor and final goods increases continuously and constantly, in a generalized manner, thus affecting the cost structure of the company and with it, the profit indexes.

It is important to note that, as indicated above, sales must be made strictly on a cash basis; however, in some cases, companies must resort to granting credit in order to sell their products. Therefore, they must have a credit policy that is relevant to their financial situation. In this regard, De la Cruz (2016), points out that credit policies are "rules and guidelines established by a company, to grant credit to its customers". Since such situation is affecting all companies, with different levels of severity.

In this order, it is worth mentioning that in the Venezuelan case, credit sales are not advisable, unless a credit policy of collection in foreign currency is managed as well as its interest in arrears, otherwise, it can bring problems to the company. The problem currently arises because the return on investment in inventory is very slow, therefore, the price for the acquisition of this is higher than the selling price, producing a patrimonial damage if the appropriate measures are not taken.

I hope you like my article and I would appreciate all your comments.

bibliography consulted:

1.- De la Cruz, J. (2016) Credit policy in companies.Available at: https://www.empresaactual.com/la-politica-de-credito-en-la-empresa/

2.- Díaz, L. (2009). Generalidades sobre la Inflación. Editorial Caracas. Caracas, Venezuela.

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