Benefits-Drawbacks

What Is Trade Credit ?

Trade credit is a business practice where seller or supplier allows the buyer to purchase goods on credit without making immediate payment. It is a short term agreement (generally 15 to 90 days) and buyer should pay the bill amount before the due date. It is beneficial to new business firms and small traders for short term financing.          

Benefits Or Advantages Of Trade Credit

The main advantages of trade trade credit can be highlighted as follows:

Benefits Of Trade Credit To The Suppliers/Sellers

1. It Helps To Increase Sales

Trade credit encourages clients to buy more products and services because it does not require immediate payment. So, it helps the sellers to increase sales volume which leads to increase in the earnings of the business.

2. Better Customer Relation

Trade credit builds trust between the sellers and buyers which improves customer relation and loyalty. Better customer relation helps to increase repeated customers.

3. Attracts New Customers

Better of better customer relation and trust, it improves the image of the business. Good public image helps to attract more potential customers.

4. Competitive Advantages

Sellers who provide trade credit facility to their clients can increase their sales and gain more customers which helps them to compete with rivals in the market.

Benefits Of Trade Credit To The Buyers/Clients

1. Cost Effective And Convenient Source Of Financing

Trade credit may be the most cost effective and easy source of financing to start a new business because it reduces the capital requirement. It is very useful for those who cannot raise enough fund to commence  business. 

2. Better Cash Flow

It improves the cash flow and helps to maintain liquidity in the business. So, daily business activities can be performed smoothly without facing any financial problem.

3. Incentives And Discounts

Sellers offer incentives for early payment ro encourage their clients. Buyers also can enjoy the benefit of bulk buying.  

Drawbacks Or Disadvantages Of Trade Credit

The major disadvantages of trade credit can be highlighted as follows:

Drawbacks Of Trade Credit To The Sellers/Suppliers

1. Problem On Cashflow

The main disadvantage of trade credit to the seller is that it may negatively affect the cashflow and create liquidity problem. Suppliers may have to face difficulty to pay outstanding bills.

2. Monitoring Problem

It takes paper work, extra time and effort to maintain and monitor outstanding account receivable .

3. Risk Of Bad Debt

Another drawback of trade credit is that there exists a high chance of bad debt. If buyers fail to make payment, it negatively impact business. In this situation, sellers have to suffer from huge financial loss.

Drawbacks Of Trade Credit To The Clients/Buyers

1. Difficult To Obtain

Although trade credit is convenient source of financing, it is very hard for new businesses because they do not have past record. So, suppliers may hesitate to provide this facility to the new clients.

2. High Penalties And Interest 

If buyers cannot make payment on time, then suppliers may charge penalties and interest on debt. It becomes difficult for the clients to repay debt with interest.

3. May Affect The Image

It client fails to make payment by given deadline, then it negatively affect the credit rating that may hamper the image and goodwill of the buyer/client.

Pros (To The Supplier)

- It boosts sales and earnings

- It promotes customer relations and loyalty

- It helps to widen the market 

- It improves the goodwill and image of the firm.

Pros (To The Buyer)

- It is convenience source of short term financing

- It helps small businesses to main better cash flow

Cons (To The Supplier)

- Because of credit sales, supplier may face liquidity problem

- It may increase the bad debt because of default payment

- It requires extra time and work to maintain credit records

Cons (To The Buyer)

- In case of late payment, suppliers may charge higher rate of interest and penalties

- It is very difficult to obtain this facility for new business firms

What Is Retailing ?

Retailers purchase goods or services from wholesalers or suppliers and sell to the consumers.They are known as the link between suppliers and final consumers. So, retailing is an act of obtaining products from wholesalers and selling to the ultimate users. There are several benefits as well as some limitations of retailing which are discussed in this post.

Benefits Or Advantages Of Retailers

The main advantages of retailers can be described as follows:

1. Less Capital Requirement

It does not require huge investment to start retail business. Retailers buy goods from wholesalers in small quantity and sell to ultimate customers. It does not need large space to store goods. So, retailing can be commenced with little investment.

2. More Profit Margin

There is fixed margin of profit for wholesalers. Generally they earn 3% to 8%  profit on sale. But there is no fixed margin for retailers, shopkeepers may fix profit margin up to 20% in some cases.  

3. Credit Facility

Another benefit of retailers is that they get credit facility from wholesalers or dealers. But they sell products on cash which helps to maintain adequate liquidity in the business.

4. Better Customer Relation

Retailing is directly linked with the customers. Retailers can understand the interests, preferences and buying behavior of customers. It helps to build better customer relation and loyalty.

5. No Liability

In case of faulty or defective products, the manufacturer should replace the product. So, retailers do not need to bear the loss.

Drawbacks Or Disadvantages Of Retailers

The main disadvantages of retailers can be described as follows:

1. High Marketing Cost

Retailers should make investment in decoration of shop and display of goods to attract more customers. So, it requires more marketing or advertising cost than wholesalers.

       Also Read: 

Advantages And Disadvantages Of Wholesalers

Difference Between Wholesalers And Retailers

2. Selling Skill Required

It requires good selling skill to attract customers. Retailers should possess the art of good communication and convincing power to influence consumers. 

3. Very High Competition

Another disadvantage of retailing is that there is tough competition in the market because several retailers sell similar types of products. So, it is difficult to remain in the competitive environment.

4. No Economies Of Buying

Retailers buy small volume of products from wholesalers. So, they miss the opportunity to enjoy he benefit of economies of buying.

It is difficult to find out proper location to start retail store. It requires highly dense area with fewer competitors.

Pros And Cons Of Retailers In Short

Pros:

- Retailing business can be started with less investment and less space

- Retailers can enjoy more profit margin

- Retailers can get trade credit facility from suppliers which increases the liquidity in the business

- There will be no liability towards the buyers

- It helps to increase customer relation and loyalty

Cons:

- It consumes high marketing expenses

- Retailers have to face high competition in the market

- There will be no economies of buying

- It requires better selling and marketing skills to run retail business

What Is Wholesaling ?

In simple words, wholesaling is an act of selling goods to the retailers. Wholesalers buy large quantity of goods from producers or distributors and sell to the retail stores. Retailers buy goods from wholesalers and sell to the final customers. Therefore, wholesalers bridge the gap between manufacturers and retailers.

Benefits Or Advantages Of Wholesalers

The main advantages of wholesalers can be highlighted as follows:

1. More Discount And Allowance

Wholesalers buy large quantity of goods from manufactures. They can receive cash discount and quantity discount because of bulk buying. It helps to reduce buying cost and increase profit. So, wholesale business enjoys the benefit of large scale buying.

2. Less Marketing And Advertisement 

Generally producers market their products by using different methods of advertising. Retailers also use product display and demonstrations to attract potential customers. Wholesalers do not need such marketing activities because they buy from manufacturers and supply to retailers. So, it helps to eliminate marketing costs.

3. Profit Margin Is Fixed

Wholesalers do not need to worry about the profit because they earn fixed rate of profit. So, they should try to increase sales volume which helps to increase earnings.

Wholesale business does not face tough competition in the market because each wholesaler deals with specific product line from certain producer. So, there is less competition because of limited product line and fewer number of wholesalers. 

5. It Does Not Require Special Skill

Wholesalers do not deal with final consumers, So, they do not require selling skills to attract customers like in retailing.

6. Link Between Manufacturers And Retailers

Retailers cannot buy large quantity of products because of the lack of capital. Producers cannot sell small quantity of their products to each and every retailer in the market. In this situation, wholesalers buy products from producers and supply to retailers. So, wholesaling plays great role to bridge the gulf between manufacturers and retailers.

Drawbacks Or Disadvantages Of Wholesalers

The major disadvantages of wholesalers can be described as follows:

1. It Requires Huge Capital

Huge amount of capital is required to start wholesale business. It requires sufficient fund to buy large volume of goods. Adequate level of stock should be maintained to avoid shortage of product in the market. Truck or delivery van is required to deliver goods to different retail stores. So, it cannot be commenced with little investment. 

     Also Read: 

Advantages And Disadvantages Of Retailers

Difference Between Wholesalers And Retailers

2. Needs More Space

It requires more space to store large quantity of goods. Wholesalers need to spend huge storing expenses due to high commercial rent.

3. Less Profit Margin

There is less profit margin in wholesale business than in retailing. Usually wholesalers earn 2% to 8%  profit on sale, but retailers may enjoy 10% to 20% profit. 

4. Possibility Of Loss

Large quantity of goods should be kept in the store room safely and properly. Water, fire, and insects can damage the products . In this situation wholesalers have to face huge financial loss. 

5. No Direct Interaction With Customers

As we know that wholesalers do not sell goods to the final customers, it means there is no interaction between wholesalers and customers. So, wholesalers cannot understand the interests and preferences of audience.

Pros And Cons Of Wholesalers In Short

Pros:

- Wholesalers get more discount and allowance from distributors because of large scale purchase 

-  Wholesaling business does not require more marketing costs

- Wholesalers do not have to face tough competition like retailers

- Selling skill is not require 

- There will be a fixed profit margin

Cons:

- It needs huge capital investment and more space to start wholesaling

- There will be less profit margin than retail business

- There is no direct interaction with customers

What Is Traditional Marketing ?

Traditional marketing is a strategy that uses offline mediums such as radio, TV, newspapers, direct mail, telemarketing etc. for the promotion of products or services. It is the oldest and most commonly used mode of advertising. It has both benefits and drawbacks which are briefly discussed in this post.

Benefits Or Advantages Of Traditional Marketing

The main advantages of traditional marketing can be highlighted as follows:

1. It Is More Familiar Method Of Advertising

People can easily understand traditional marketing because it is one of the oldest and widely used techniques of product promotion. 

2. It Is Suitable And Accessible For All

One of the main drawback of digital marketing is that it is not suitable for those audience who do not have access to internet and social media platforms. But traditional marketing is suitable and accessible for everyone because it does not require internet service and digital devices. 

3. Reachable To Specific Audience Or Customers

Traditional marketing helps to target specific audience of certain location because it uses location radio, newspapers and TV channel to influence local people. So, it is suitable for the company to attract potential customers of certain region towards the products.

Drawbacks Or Disadvantages Of Traditional Marketing

The main disadvantages of traditional marketing can be described as follows:

1. It Is Expensive Method Of Advertising

Traditional marketing requires more cost and resources than internet marketing. It needs huge marketing budget to promote brand through radio, TV or newspapers.

       Also Read: 

Advantages And Disadvantages Of Digital Marketing

Advantages And Disadvantages Of Content Marketing

Advantages And Disadvantages Of Direct Marketing

2. Limited Number Of Audience

As we know that online marketing attracts large group of audience because it performs globally. But in traditional marketing gives emphasize to the specific audience of specific location. So, it is reachable to limited number of potential customers.

3. It Is Difficult To Measure The Performance

Performance of online marketing can be tracked and measured by using different online tools and applications. But in traditional marketing, it is difficult to collect data and information about the campaign. So, performance and conversion cannot be measured accurately in this mode of advertising.

Pros:

- It is the oldest method, therefore everybody can understand this strategy easily.

- This mode of advertising is accessible for all types of audience

- It is suitable to attract specific group of potential customers

- Product testing is possible through this strategy of marketing

- Success rate is higher than other forms of marketing

Cons:

- It requires more budget and resources 

- It cannot attract large number of audience like digital marketing

- Audience get limited information

- It is difficult to track and measure the performance

What Is Digital Marketing ?

It is a promotion of products or services through internet and digital media such as websites, search engine, mobile marketing, social media, affiliate marketing etc. This mode of advertising can attract audience more effectively than traditional marketing. Digital marketing has several advantages as well as some limitations which are discussed in this post.

Benefits Or Advantages Of Digital Marketing

The main advantages of digital marketing or online marketing can be described as follows:

1. It Is Easy And Convenience Method Of Brand Promotion

Digital marketing does not require more resources like in traditional marketing. By using internet and social media platform, message and information can be spread all over the world in just one click. So, it is simple and quick method of advertising.

2. It Requires Less Cost

Another benefit of online marketing is that it consumes less time, effort, resources and cost than traditional marketing approaches. It requires more marketing budget to promote through television, radio, newspapers and magazines. But in digital marketing, it can be done by using internet with small budget.

3. Digital Marketing Attracts Targeted Audience Effectively

Brands can be promoted through facebook, twitter, instagram, emails etc. Information can be shared globally within a minute which helps to increase targeted customers with less effort.

4. It Is Trackable And Measurable

Performance of this campaign can be tracked with the help of different online tools such as google analytics, sitemeter, statcounter, geovisite and other software. These tools and software provide different information like number of people visit the page or advertisement, their region, their response etc.

5. It Has High Conversion Rate

Internet marketing promotes products or services globally which attracts large group of potential customers. Because of more visibility, it increases engagement, leads and conversion rate.

6. Better Customer Relation

Digital marketing helps to understand the behavior and interests of customers. A marketer can treat them according to their behavior to satisfy them. It helps to build better customer relation which promotes customer loyalty.

Drawbacks Or Disadvantages Of Digital Marketing

The main disadvantages of digital marketing can be described as follows:

1. It Requires Special Skills And Knowledge

Digital marketing is not an easy task because it requires computer knowledge and social media managing skills. Good writing skill is required for content writing, photography and videography skill is required for video advertising. web development, search engine optimization skill is required to make websites and blogs. Marketers should handle social media platforms such as facebook, twitter, linkedin, pinterest etc. properly to promote products or services. 

2. It Is A Time Taking Campaign

It takes enough time to create and promote brand through digital marketing. It requires hard work and a lot of time to gains customer trust. 

       Also Read: 

Advantages And Disadvantages Of Direct Marketing

Advantages And Disadvantages Of Content Marketing

Advantages And Disadvantages Of Traditional Marketing

3. Very High Competition

Because of globalization, it is very difficult for the marketers to influence audience through online promotion. It is a complex task to create unique content and to grab people's attention in this competitive market.

4. It Is Not Suitable For All Customers

Digital marketing may not be suitable for all types of products. For example, if your product target elderly, it will be wise to advertise through traditional marketing because old people may not have access to internet and social media. This marketing strategy is not suitable for business such as beauty parlor, hair saloon, taxi service etc. 

Digital marketing is totally dependent on technology and trends. Any change in technology may affect its performance. If government makes changes in social media and internet policy, it may create big challenge for marketers. So, online marketing is affected by the change in technological and political environment.

Pros And Cons Of Digital Marketing In Short

Pros:

- It is simple, convenience and quick mode of advertising

- It can be performed by using less cost and resources

- It is environmental friendly because it does not use papers, plastics, boards etc. like in traditional marketing

- It can attract large group of audience 

- Its performance can be tracked and measured easily

- It is more flexible than other forms of advertising

Cons:

- It requires special skills and knowledge to carry out this strategy

- It takes a lot of time to make make content and materials

- Marketers have to face tough competition

- It is not accessible for all types of people