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Credit Management
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Credit management is the business activity of controlling and processing the trade debts which arise due to the common practise of extending credit to customers. It is commonly considered to be part of accountancy and there are professional bodies for specialists such as the Institute of Credit Management and the National Association of Credit Management. In many companies and institutions, the departmental function may be known by titles such as Credit Control, Credit and Collection or Accounts Receivable. Detailed activities include: * credit granting for customers * resolution of any invoice queries or disputes * allocations of payments or cash application * internal fund movements, reconciliations * collection of delinquent accounts receivable * maintaining positive working relationships with customer Control of customer credit lines or credit limits is important. In order to minimize exposure to bad debt, over-reserving and bankruptcies, companies must have insight into customer financial strength which may be measured by credit score history and changing payment patterns. Effective penetration of new markets and sales to new customers requires companies to make well-informed credit decisions and set appropriate lines of credit. Credit management has evolved from a pure accounting function into a front-end customer-facing function. It involves screening of customers so that only those who are credit-worthy are allowed to do business. A sound review of the financial position of the customer and understanding of their business model is the first step in ensuring that the company does not end up selling to a customer who may become seriously delinquent or default. So, before the sales function commences its business with the particular customer, the credit management role begins. Later as the customer starts dealing with the company, the accounts receivable function is used to ensure recovery as per agreed terms of credit is followed. Credit management has a direct affect on a company's cash flow. See Also
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