What is credit management?
Credit management refers to the process of granting credit to your customers, setting payment terms and conditions to enable them to pay their bills on time and in full, recovering payments, and ensuring customers (and employees) comply with your company’s credit policy.
We estimate that one in five business bankruptcies among small to medium companies occurs because customers default on their invoices. And that’s the knock-on effect: late payments by your customers have implications on your own creditworthiness. That’s why credit and debt management are essential to running your business successfully.
So when wondering ‘what is credit management?’ think of it as your company’s action plan to guard against late payments or defaults by your customers.
An effective credit management plan uses a continuous, proactive process of identifying risks, evaluating their potential for loss and strategically guarding against the inherent risks of extending credit.
What are the benefits of credit management?
One of the key benefits of credit management is the ability to see a clear picture of your company’s finances so you can avoid unnecessary credit & trade risk and seize opportunities.
But that’s not all. The benefits of credit management also include:
Cash flow management: ensuring that your cash inflows are always higher than your cash outflows so that you can pay your bills and employees on time.
Reducing the number of late payments by detecting them earlier and preventing bad debts, consequently reducing the possibility that a default will adversely impact your business.
Increasing available business liquidity.
Executing faster and more complete debt recovery.
Improving your company’s Days Sales Outstanding (DSO).
Identifying opportunities and freeing up your company’s working capital for critical business investments that can support strategic growth.
Helping you plan and analyse performance, which enables you to prepare financial budgets for the years to come.
Reassuring potential lenders who can fund your business expansion plans.
Know more: https://www.allianz-trade.com/en_SG/insights/risk-management/what-is-credit-management-and-what-are-its-benefits.html
