As with anything, there are associated disadvantages or drawbacks. We can call them as limitations as well. The common drawbacks are as follows:
- The installment sales is a valid contract between buyer and the seller whereby the sellers transfer the possession of the asset to the buyer over down payment. Later, it is the responsibility of the buyer to pay the remaining amount in equal rentals. However, if the customer does not make payments in future and escapes, then it is a loss to the business,
- Seller invests heavy capital for the acquisition of the asset and then sells the same on installments. During this long period, the seller capital remain blocked which also causes decrease in the time value of the money,
- As the original documents of the asset remain with the seller, the buyer cannot sell this asset to the 3rd party. He or she has to wait until the payment gets cleared,
- The management of installment sales accounting is a tedious task and for this many people are required which put extra burden over the cost,
- Since the gross profit margin is extremely high, this discourages many people go to exercise this option.