Entrepreneurs should be vigilant for signs that their business may be overextending credit:
- Increasing Accounts Receivable: A growing balance in accounts receivable may indicate that customers are taking longer to pay. - Late Payments: A rise in the number of late payments can be a red flag that customers are struggling to meet their obligations. - Cash Flow Strains: If the business is experiencing cash flow problems despite healthy sales, it may be a sign of overextended credit. - Dependence on Credit: Relying heavily on credit to make sales can be a warning sign that the business is overextending itself.