Mobile Device: Micro Financial Risks

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Providing smart phones on cash with subsidy and devices on installment:
Financial Risks:
The financial risks of cash with a subsidy are related to the sales of smartphones. If the sales revenues of mobiles are low there is a financial risk because the business is not able to get revenues to pay off its short-term and long-term obligations. If the sales revenues are inadequate the firm cannot pay its suppliers, its employees, and its banks. This situation can lead to the liquidation of the firm. The financial risk of selling only with cash with subsidy emanates from the fact that most customers cannot afford total upfront costs, and they cannot afford the phone they want. If the customer buys cash with a subsidy, he will have to settle for a cheaper phone or postpone the purchase.

The positive sides from a financial risk point of view are that there is no risk of payment default from customers. All payment is received at the time of purchase. The financial risks of customers not paying, default in payment, and liquidity is reduced to the minimum. Many customers prefer cash with subsidy because the transaction leads to no contracts, it is easier to switch carriers whenever the customer wants, and there are lower monthly bills (1). Moreover, the customer can opt for better plans.

In the case of the device on installment, there are several financial risks that the seller faces. The positive reason for providing the device on installment is that the customer gets the phone he wants at the time of purchase. Also, there is little or no upfront cost. Since the customer does not feel the financial pinch the customer can buy the latest smartphone. For example, when the customer sees a new iPhone and does not have the cash to buy it he can buy the phone in installments. The financial risk of the seller is reduced because the installment option keeps his level of sales revenues at an acceptable level. He can pay his short-term debts and service his long-term debts. When the seller sells the device on installment he can increase his sales and this reduces his financial risk.
However, there are several financial risks when the firm sells devices on installment. The most common financial risks faced by the firm are fraud, nonpayment of installments, changes in market interest rates, falls in liquidity, and changes in the law (2). The firm also faces financial risks related to obtaining debt for granting installment ...