5 Effects of Lending Money and Goods to Customers

5 Effects of Lending Money and Goods to Customers

In our African communities, lending money or goods to customers from businesses is very common. Although this can be beneficial on one hand, due to the lack of trust among many people, it has had more negative effects than benefits.

You may have been lending money to your valued customers or using loans as a way of selling your services or products, but let me share with you five effects of such loans.

1. Losing customers

There is a saying that goes "Lending to a customer is chasing them away." I have heard business owners say that since they lent money to a customer, they have not returned to their shop, or they avoid passing by. Often, once a customer has been lent money or goods, they no longer go to that business to avoid paying their debt.

Instead of losing customers through lending, it is better to explain the truth to them with tact; although they may not be happy at the time, they will understand and continue to be your customer.

2. Conflict or damaging relationships

There is a saying that goes "Lending for a wedding will pay for a funeral." Often people come with happy faces and trust when borrowing. Once they borrow, conflicts and disagreements may arise, especially for those customers who are not trustworthy in paying their debt.

Some business owners have ended up fighting with their customers or even completely ruining their relationships with them because of lending goods or money from their businesses.

Therefore, it is better to avoid this issue of loans in your business rather than ending up fighting with your customers or important people.

3. Effects on the circulation of money

Business money should circulate and not stay in one place. When business capital becomes goods in the store, those goods should be sold; after the goods are sold, we are supposed to get sales that include part of the capital and profit. When someone borrows money or goods from your business, they directly disrupt this circulation.

This causes problems such as lack of complete money for purchases or other costs. This problem has led others to take their personal or external business money to fill the gap created by loans to avoid business failure.

4. Losing money and assets

There is no 100% guarantee that the money or goods you have lent to customers will be paid back. Considering that many people lend each other money and goods locally without following legal procedures that can protect them in case the borrower is not trustworthy.

Therefore, lending can cause you to lose money and assets you have lent to customers if they are not honest in paying, which can also affect your business.

5. Bankruptcy or business failure

This point is a conclusion of the above points; if loans are not paid on time or not paid at all, your business may go bankrupt or fail completely. It has been observed that business owners with loans they are owed by their customers have led to their businesses' failure or bankruptcy."