Risks – Business Customers and Marketing
Extended terms tie up capital in the normal operation of the business. The capital tied up in funding customers to purchase business’s products and services is likely to reduce the overall return on the funds invested in the business; and hence its value. Poor debtor policies and controls can see bad debt levels increase with the obvious reduction in profit.
The customer base is likely to turnover over time. Assuming that customers will remain forever is simply not realistic. Businesses without marketing activities designed to bring new customers to the business to, at least, maintain the customer base are likely to see profits fall over time.