Requesting that customers pay you on delivery, rather than getting a bill, helps you in a variety of ways, but it can also reduce your ability to sell and grow. Depending on the type of business you run, the amounts you charge and your ability to extend credit, the advantages of extending credit and amassing accounts receivable might far outweigh the benefits of getting paid in cash.


Some businesses refer to cash as any monies received in the form of currency or checks. This definition has evolved to include electronic funds, such as payment made by PayPal. For accounting purposes, you might consider all money received at the time of a sale, including credit card purchases, as cash payments if your goal is to differentiate payments from extensions of credit you offer. Depending on how soon you are paid by your credit card company, you might consider credit cards payments receivables until you receive that money.

Accounts Receivable

When you sell to customers and allow them to pay later, you create a receivable. This allows customers to order goods when they might not have cash on hand, lets them pay their bills in a more orderly fashion or gives them time to sell what they buy from you, generating the cash to pay you. The total amount of money people owe you from sales is called accounts receivable. Like cash, accounts receivable are treated as an asset on your balance sheet.


The advantages of cash include having more money in your operating account, the ability to use that money to reduce debt and interest payments, decreased administrative time and costs dealing with billings and collections and a lower risk of bad debt. When you receive payment by cash, you don’t need to budget for bad debt, improving your balance sheet. The advantages of accounts receivable include the ability to sell more, because not all customers can afford to pay in cash. Increased sales results in increased profits and an improved balance sheet, raising your company’s net worth. Lenders might be more willing to use accounts receivable as collateral than equipment. They might also lend you larger amounts if your accounts receivable collection history is good or based on the timing of your receivables coming due.


The disadvantages of taking cash primarily revolve around reduced sales potential. This is especially true if you don’t take credit cards or electronic transfer payments. Even when buyers have plenty of money to buy, they don’t always carry enough cash to make purchases. Cash sales also create security vulnerabilities with having large amounts of cash on site. Disadvantages of extending credit include longer times to receive payment, increased debt service costs, risks of bad debt and increased office staff time to manage receivables.