Trade cannot be carried out without credit and credit granting involves a risk. The successful businessman tries to safe guard himself against losses by requesting the would-be buyer to give references before he grants credit. The persons who command some respect in the business circles or known to the seller. If the reply to the status inquiry is favorable then the credit is granted and is the status inquiry is unfavorable then the credit is refused.
A point blank refusal is not only in bad taste but also very poor business tactics; it will annoy the buyer and generate ill-will. The letter should instead emphasis the benefits of cash payments and should tempt the buyer to pay cash by offering him cash discount. Another situation that demands careful handling may arise when the buyer who is not known to the seller places a large order without making any reference to the terms on which it proposes to pay. It would be indelicate to suggest that the party is not reliable and is not worth giving credit. In such cases the letter should be tactfully point out the advantages of cash payments and also stress that if credit is to be granted then the buyer will have to provide at least two references.
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