Credit management involves qualifying credit extension, overseeing payments, initiating collection procedures, and resolving disputes. It begins with assessing customer creditworthiness and establishing credit criteria. Accurate and timely statements or invoices are provided to customers, allowing sufficient time for review and resolution. Efficient credit management benefits both the seller and the client.
Credit management is a term used to identify accounting functions that are typically performed under the umbrella of Accounts Receivable. Essentially, this collection process involves qualifying the extension of credit to a customer, overseeing receipt and recording of payments for outstanding invoices, initiating collection procedures, and resolving disputes or inquiries regarding charges on a customer invoice. When running efficiently, credit management serves as a great way for a business to remain financially stable.
The credit management process begins with the accurate assessment of the creditworthiness of the customer base. This is particularly important if the company chooses to extend some type of credit line or revolving credit to certain customers. Properly manage credit calls to establish specific criteria that a customer must meet before receiving this type of credit agreement. As part of the evaluation process, credit management also requires determining the total line of credit that will be extended to a given customer.
Various factors are used as part of the credit management process to evaluate and qualify a customer to receive some form of business credit. This includes the collection of data about the prospect’s current financial situation, including current credit rating. The current relationship between income and outstanding financial obligations will also be taken into account. The competent administration seeks not only to protect the seller from possible losses, but also to protect the client from the creation of further debt obligations that cannot be settled in a timely manner.
After establishing a credit limit for a customer, credit management focuses on providing the customer with accurate and timely statements or invoices. Invoices must be delivered to the customer within a reasonable period of time before the due date, thus providing the customer with a reasonable period of time to comply with the purchase terms. The period between invoice delivery and the due date should also allow sufficient time for the customer to review the invoice and contact the supplier if they have any questions or concerns about a line item on the invoice. This allows all interested parties time to review the question and come to some sort of resolution.
When the credit management process works efficiently, everyone involved benefits from the effort. The seller has reasonable assurance that invoices issued to a customer will be paid on time, or that regular minimum payments will be received on credit account balances. Clients have the opportunity to establish a good relationship with the provider and thus build a strong credit reference.
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