Debt management?

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Debtor management is a strategy that involves the process of designing and monitoring the policies that govern how a company extends credit to its customer base. The idea behind this process is to minimize the amount of bad debt the company will eventually incur due to customers not meeting their commitments to pay the full amount of purchases on credit. Typically, the debtor management process begins with evaluating potential customers for creditworthiness, identifying a credit limit that carries a level of risk the company is willing to take, and then monitoring how well the customer is doing. makes use of that available credit, including making regular payments within the terms and provisions associated with the credit account.

One of the basics of debtor management is evaluating precisely what type of credit line to extend to a given customer. Several factors go into making this determination, including the customer’s credit rating, current debt-to-average income ratio, and the presence of negative items on the customer’s credit reports. With this information in mind, it is possible to have an idea of ​​how much credit the customer can reasonably be expected to manage and not present a high risk of default on any outstanding balance.

Even after the credit limit is set, debtor management requires careful monitoring of how the customer chooses to manage that limit responsibly. This includes determining whether at least the required minimum payment is made on time each billing period, how often the customer pays more than the minimum, and whether the customer occasionally pays the full balance in accordance with the terms and conditions of The credit contract. This monitoring of activity along with periodic checking of credit reports to determine if the customer has had any changes in scores that could affect the credit limit, makes it possible for the creditor to reward the customer with an increased line of credit, keep the limit up to date level or reduce the limit as a means of protecting the interest of the creditor.

Along with creditor fiscal responsibility, debtor management also involves evaluating debtor accounts in light of what is happening in the general economy and making changes to credit limits when and as appropriate. For example, a business may feel the need to lower credit limits for various customers when a recession hits. This is not due to borrower abuse of credit, but rather to changes in the economic climate that increase the risk that a higher percentage of borrowers on average are likely to default on their open balances. By lowering credit limits, at least until the economic crisis is resolved and the economy strengthens, this debtor management strategy further limits the total amount of loss a creditor can sustain.

Smart Asset.

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