Several factors can drive entrepreneurs to overextend credit:
- Growth Pressure: Startups and young businesses often feel pressured to grow quickly. Offering credit can be an attractive way to attract new customers and boost sales. - Customer Relationships: Entrepreneurs may offer generous credit terms to build strong relationships with key clients. - Competitive Advantage: Providing credit may be used as a strategy to gain an edge over competitors who may not offer similar terms. - Cash Flow Mismanagement: Misunderstanding or mismanaging cash flow projections can lead to overextending credit.