Why Credit Management Services Are Vital for A Firm?s Financial Viability

Posted by Armstrong Louis on August 7th, 2018

Credit management of any given firm is incredibly vital as it helps sustain the creditworthiness and daily financial objectives of the firm. Credit management, in layman’s terms, can be defined as a process which entails the management of credit granted to one’s customer. It is a financial discipline which has gained prominence in the past few decades, as bad debts continuously rise year after year.

Here’s where a credit management service’s role comes to play: (Information Credit – https://www.accountability.co.za/group/quality_services.php)

The credit manager of the service tasked with the job of resolving the unpaid debt has the role of initially assessing followed by controlling and optimising the risk. For one to properly understand the factors behind bad debts, one must study the root causes. There are myriad root causes of bad debts. Some of the most significant ones are: insolvency of your client, administrative or technical discrepancy, on-going litigation or laxity of the credit firm in attaining the debts payments of your customer. Thus, the credit management service plays an indispensable role in identifying the varied dysfunctions in the internal functions of the company and take necessary correcting measures.

Let us delve in-depth into the credit management process by analysing the right indicators:

1. The First Step: In the first step, your firm must determine the customer segments and the associated risks. Furthermore, devise sales conditions which include the stipulations of late payment penalties and the property reserve clause.

2. The Second Step: In the second step, the creditworthiness of your customer is rated with certain predetermined guidelines. Also, the firm should formulate a credit limit after a thorough analysis of the customer’s financial background.

3. Signing the Contract and Billing: The balance of contract details, the level of reciprocal commitments and the provisions of the payment terms are laid down in the contract. Furthermore, in the billing stage, proper invoices are issued and validated. It is additionally compared to any applicable legal constraints.

4. Debt Collection: The debt collection management has the sole objective of attaining the funds from the customer on or before the due date. It has a two-pronged approach with preventive recovery action i.e. the process of attaining the funds before the due date and the issuance of a formal notice, if such a case arises, to start a legal procedure when the funds do not arrive after the due date. Following which, necessary litigation action will be taken either through the direct medium of the concerned firm or a collection agency.

Thus, the question arises, what if my customer becomes insolvent and is unable to pay the sum?

In this case, the credit management service will ascertain what type of insolvency procedure the debtor concerned is about to enter. Specialised knowledge will be required to gauge the bankruptcy proceedings and the credit management service will so ensure that your claim is lodged, and requisite action is taken on your firm’s behalf for the retrieval of the sum.

In conclusion, a credit management service plays an integral role in shaping the aftermath of non-payment of dues and their specialised knowledge will invariably help you in attaining the same sum.