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Management Contents | Entire Site Contents
Credit management - The way to the Top
The key to survival for any business is efficient credit
management and debt recovery.
In dealings between businesses, a supplier is expected to allow
a customer time to pay for the goods or services provided, but
if the customer pays later than the established date, profits
may be eroded. If the customer does not pay at all, then clearly
a loss will be suffered on a particular transaction. Therefore,
a healthy and productive credit management depends on the
policies of payment for the services provided.
Credit management is more efficient when reducing the risk of
non-payment through the means of a credit policy. The credit
policy should deal with the procedure for approval of credit for
new customers and the action to be taken to recover debts.
In obtaining an efficient credit management, after having
decided on giving a credit to a costumer, it is important that
terms of trade are agreed and the customer will be required to
sign a document recording that customer's acceptance of the
suppliers' terms of trade as part of the credit granting process.
To enhance your credit management as a supplier, you should
consider charging interest on late payment of debts. The rate of
interest stipulated under statute is
base rate, plus 8%.
Another important aspect for a healthy credit management is debt
recovery. The key to effective debt recovery is the ability to
apply the right amount of pressure at the right time. Credit
management should also include a collection strategy.
As part of an elaborate credit management plan, debts could be
collected by the means of a cash collection procedure involving
standard letters. Prompt referral of debts to debt collectors
substantially increases the chances of getting paid.
An efficient credit management policy supported by a pro-active
cash collection and debt recovery strategy will reduce risk and
boost profits.
Another important aspect in credit management is documenting
your credit policy and ensuring that your staff understands it.
Having set that policy, only make exceptions in extreme cases.
Plan your credit management carefully and make sure that your
methods are functional.
About the author:
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