Credit Management

Submitted To: Mrs. Zennedith Monang

Submitted by: Raishlle Aaliyah Ocampo

9:30-11:00 WF D802
Credit Management

 The Credit Management function incorporates all of a company’s activities aimed at

ensuring that customers pay their invoices within the defined payment terms and

conditions. Effective Credit Management serves to prevent late payment or non-payment.

Getting it right reinforces the company’s financial or liquidity position, making it a

critical component in any business. This Wiki tells you all about the importance of good

credit management, the benefits and how to create a robust platform.

 Credit management covers a diverse field of credit-related areas, from granting consumer

credit requests to managing the credit options of large corporations to collecting

delinquent debts. There are a variety of educational and career options in credit

management - read on to learn more

Purpose

If your customers do not pay for their tiles, you would not be able to pay your workers or pay for

raw materials. Very soon your workers would look for new jobs, your suppliers would no longer

supply your raw materials and finally, production would stop. If your business is to succeed, you

must manage the credit you give to your customers, just as you must manage the credit you

receive from your suppliers.

Credit

Sometimes, your customers will not be able to pay immediately, although they take home the

goods they have purchased in your business. That means: You give credit to your customers. The

customers to whom you have given credit are called debtors. Sometimes, you do not need to pay

immediately for the things you purchase with your suppliers. Your suppliers may

also give you credit. The suppliers who have given you credit are called creditors. There is an

important difference to regular credits from a bank: No interest is paid.

Debtors

You should keep the number of your debtors as low as possible. When you give credit your cash

is tied up. You receive no interest and the value of the credit given may be reduced by inflation.

By the time your debtors pay their bills, the value of the money may be less than when you gave

the credit.

Creditors

You should not have many creditors either, and always be able to pay your debts within the

agreed upon time limit.

Conclusion

The following two rules should form the basis of your credit management system:

1. The number of your debtors and creditors should be kept as low as possible.

2. The amount of creditors should not be higher than the amount of debtors
 3. Credit Control

 It is possible to have a profitable business that has no cash because your customers have

not yet paid for the goods they received on credit. For this reason you need a credit

control system.

Debtors

Your debtors can be controlled in an efficient way by using two files:

 Customer invoice file. When you write an invoice keep one copy in the customer invoice

file. File the invoices in numerical order (voucher no. or date). In this file you will always

be able to see who owes you how much. From time to time look through the old invoices

and write reminders to the customers who have not yet paid their invoices, or visit them

and collect the amount owed to you. When a customer only pays part of an invoice, make

a note on it and leave it in the file.

 Paid customer invoices. When a customer pays the full amount of the invoice, stamp or

write “paid” on your copy of the invoice. Remove this invoice from the file ‘customer

invoice file’ and put it into a file labelled ‘paid customer invoices.

 Paid suppliers invoices. Once you have made payment, write “paid” on the invoice,

stating when and by whom payment was authorised and confirming that the details have

been checked. Transfer the invoice to the file ‘paid suppliers invoices’.
BENEFITS

 Make Consistent, Informed Credit Decisions—Oracle Credit Management lets you

reduce credit risk through standardized and global credit models.

 Build and Maintain Relevant Credit Policies—Oracle Credit Management's policy

configuration feature guides you through simple setup steps to ensure that your intended

credit policies are accurately represented and implemented.

 Automate the Entire Credit Cycle—Oracle Credit Management allows you to efficiently

promote financial stability within your enterprise by automating credit account review

events.

Credit Manager CV Example

 Creating a standout CV can lead to catching the eye of hiring managers, but it can be hard

to know what elements to include in a winning document. Reviewing the credit manager

CV example below can give you a clear idea of how to format your own document, what

type of information to include, and which sections you need to have.

 example can be beneficial, you may still need pointers on how to incorporate your unique

experiences into each section. The following CV tips will help you tailor your

professional document.
The Importance of Credit Management

The sales function of a business is often seen as one of the most important aspects of a business,

and whilst it is vital, many companies I have worked with have focused so much energy on sales

that credit management processes have fallen behind.

Effective credit management can help to avoid falling into this trap. No matter whether you are a

one man band, or a business with a turnover in the millions, credit management should always be

given priority. Simple checks can sometimes save you from making big mistakes when it comes

to granting credit. An argument can be made for these checks drastically reducing the time

needed for effective credit control, as well as reducing the risk of bad debt to your business.

Below are listed a few Golden Rules for effective Credit management:

 Credit management starts before the sale! Credit Checks are essential to risk assessment.

They can save your company from taking on excess risk when granting credit,

subsequently drastically reducing your risk to bad debt. Credit risk, however, is not set

indefinitely, therefore your customers should also be put onto ongoing monitoring so that

you are alerted when there is a change in your customer’s circumstances, good or bad.

 Terms & Conditions – These are vital. Most T&C’s are accepted by conduct, which

leads to the ‘battle of the forms’. Whichever company’s terms were the last to be

received by the other party prior to the contract being performed are those that apply.

Signed agreements are always preferable, as there should be no confusion as to what

terms have been accepted. If you do have to accept your customers Terms & Conditions,

make sure you review them fully, be aware of your contractual obligations as well as
 liabilities in addition to payment terms. If you are unhappy with any clauses, don’t be

afraid negotiate with your customer.

 Proactive chasing – Let your customers know you are hot on their trail. Being proactive

and chasing before the invoice is due means that any issues come to light quicker, and

you can resolve them before they delay the payment. You should try to conduct the call

as a ‘customer service’, rather than a collection call.

 Close the Call – When carrying out telephone collections, always gain commitment at

the end of the call, even if it is only a date to call back. You must always ensure you

collect as much information as possible; names, follow up dates and firm commitments.

Always follow-up as promised, this will help educate your customers that they have little

or no ‘wiggle room’ and will find it easier just to pay.

 Queries – Queries can be a nightmare when it comes to confirming payment. If you get a

query, log it by date, reason, resolver. Measuring reason codes can alert you to under-

performing arrears in your business process that need to be fixed. Measure time taken to

resolve disputes and look to improve on them. This will help to reduce delays in

payment and improve customer satisfaction.

 Fledgling companies tend to overlook the importance of credit management, and this

habit can stay with the company as it moves ahead. Make sure that this doesn’t apply to

you as nothing is more likely to ruin a promising company than poor cash flow.

Inside Credit Management

 Credit managers oversee the credit lending process for banks, credit card companies and

other financial institutions that issue or deal with credit. Managers may develop credit
 rating criteria, define credit ceilings and oversee credit collection accounts. Both small

and large financial institutions utilize credit management specialists, and those who work

for smaller institutions are usually also responsible for assisting customers in filling out

credit applications, responding to complaints made by customers and determining the

company's credit regulations. Credits managers can be found working in banks, credit

card companies, credit unions, investment firms or in non-financial institutions that deal

with consumer credit or investments, such as corporations, universities and hospitals.

The credit management career field could be a great career choice for students who enjoy

making tough managerial decisions and have a knack for figures.

Education Information

 Many credit managers have an educational background in financial management or

accounting. Degrees specifically in credit management are rare, although there are a few

community colleges that offer associate degree programs with a specialization in this

field. There are bachelor's and master's programs in financial management or accounting

that offer coursework in credit management or credit risk management. There are also

certificate programs in credit management, credit risk management and corporate credit

management. Coursework in credit management can include investment principles, credit

regulations, business law and money management.

Employment Information

 According to the U.S. Bureau of Labor Statistics (BLS), employment growth for financial

managers was predicted to increase by nine percent from 2012 to 2022, which is as fast

as the average for all occupations (www.bls.gov). At a rate of five percent, growth is
 expected to be slower in the depository credit intermediation industry, which includes

commercial banking institutions. The BLS reports that, as of May 2013, financial

managers earned an annual wage of $126,660 on average.

Goals & Objectives of Credit Management

 Credit Management is not all about finding the best way to minimise debt, the most

efficient way possible. It’s about developing trusting relationships with clients so that

business outcomes are achieved and profits are increased.

Safeguarding customer risk, settling outstanding balances and improving cash flow are three key

objectives of credit management that are imperative to founding profitable success.

Safeguarding Customer Risk

 Controlling expenses and ensuring that adequate care is used to make the right decisions

at the right time is the most valued objective of credit management. It’s the first step; and

one that must be used with as much caution as risk. It’s a true paradox that ignites the

success of modern-day business.

Settlement of Outstanding Balances

 Making sure that outstanding balances are settled can be challenging. This task is like the

eggs to a cake. You need it to rise. Without the receipt of payment there’s no cash flow.

Without cash flow, there’s no opportunity. Without opportunity, there’s no business. It

needs to be done, and as a matter of priority.

Improving Cash Flow

 Credit management is all about adopting the most efficient, trustworthy methods to

improve cash flow. This includes utilising reputable software programs, as well as
 training and development opportunities to ensure that the business continues to grow and

compete with the best.

 Assess and assure Credit Risk and manage it in such a way that risks (losses) are

minimized and return Is optimized

 To achieve target cash flows followed by risk based return by managing a credit

portfolio.

 Install a system and control measures for periodic reviews.

Reference:

 https://www.graydon.co.uk/wiki/credit-management

 http://www.nzdl.org/gsdlmod?e=d-00000-00---off-0cdl--00-0----0-10-0---0---0direct-10--

-4-------0-1l--11-en-50---20-about---00-0-1-00-0--4----0-0-11-10-0utfZz-8-

00&cl=CL2.2&d=HASH13604866e33f03c9c7af50.6&gt=1

 http://www.oracle.com/us/products/applications/ebusiness/financials/053293.html

 https://www.myperfectresume.com/how-to/cv-examples/credit-manager-cv-example/

 (https://www.cmgroupuk.com/news-and-advice/the-importance-of-credit-management/)

 ((https://study.com/directory/category/Business/Business_Finance/Credit_Management.h

tml)

 http://www.iodm.com.au/media/blog/objectives-of-credit-management/
BENEFITS OF GOOD CASH MANAGEMENT

1. Debts

Having good cash management will mean that your business can honour its debts and pay on

time. This will help you strengthen your relationship with suppliers and consequently if there’s

an instance where you experience cash flow problems, suppliers may be more sympathetic in

extending credit terms. It also helps your credit rating if you ever seek financing. However, if

your business is habitually late when paying debts, when you do need a favour, suppliers

mightn’t be as inclined to assist you.

2. Less stress

Another benefit of having good cash flow management is that you will worry less about the daily

operations of your business. If week on week you’re wondering where the next cash injection

will come from and whether you can meet your financial obligations then your energy is not

being utilized to positively drive the company’s expansion. This stress can create health issues

and conflict within the company if employees’ wages are threatened. Having positive cash flow

allows you to spend your time building a successful company.

3. Expansion

Good cash management can reduce your reliance on external resources if you’re trying to expand

your business and avoid high interest. If external resources are required such as a bank loan, you

may be in a stronger position to negotiate repayment terms, especially interest rates.