Credit is temporary capital and the objective of credit is to lend with the purpose of increasing profits and sales. A sound credit policy in business is the blue print to managing by measurement and benchmark The question then arises is 'What is a Credit Policy and how does one write a Credit Policy for their specific nature of business operations? Writing an effective Credit Policy begins with an understanding of the financial exposure that you or your business can endure and the amount of your working capital that you would be willing to risk, or call it 'invest' in your customers. 1.With the information-age revolution, knowledge-based activities are becoming increasingly important for existence. 2.Hence, enhancing skill-sets and knowledge is an intangible component of a credit policy. 3.I am of the firm belief that 'what gets measured gets managed'. Therefore as a matter of policy one should manage by measuring results. 4.As a guideline you can write your policy in the following sections.
The contents of each section can be written to best fit the nature of your franchise: 1. The set-up of credit function.
2. Objectives of the credit function
3. Obtaining Information on new customers.
4. Process of assessing the information to arrive at line of credit and credit terms that will be offered. 5. Monitoring your investment in your customers
6. Defining past-due and bad debts
7. Targets, benchmarks and deadlines for the credit function 8. Analyzing the changing needs of your markets/customers.
5.Credit Management is an art and not a science. It is definitely an 'indefinite'. 6.But as a credit adage goes "get the calculations right in a calculated risk" and remember that 'A sale is not complete till the money is collected.
Credit policy Indecent exposure
1.People taking loans on high rates of interest and proving to be deliquescent customers. 2.As happened during Russia’s financial crisis of August 1998.,, if the...