SITUATION
Steve Jones is the 35-year-old owner of a highly competitive small business, which supplies temporary office help. Like most businesspeople, he is always looking for ways to increase profit. However, the nature of his competition makes it very difficult to raise prices for the temps' services, while reducing their wages makes recruiting difficult. Jones has, nevertheless, found an area-bad debts-in which improvement should increase profits.
A friend and business consultant met with Jones to advise him on credit management policies. Jones was pleased to get this friend's advice, as bad debts were costing him about 2 percent of sales. Currently, Jones has no system for managing credit.
Question 1 What advice would you give Jones regarding the screening of new credit customers?
Question 2 What action should Jones take to encourage current credit customers to pay their debts? Be specific.
Question 3 Jones has considered eliminating credit sales. What are the possible consequences of this decision?