10 Questions
What is an important aspect of setting credit policies?
Outlining the company's approach to credit risk management
What is a key responsibility of the credit department?
Evaluating creditworthiness
Why does the credit department monitor credit risk?
To minimize the risk of non-payment
What is another responsibility of the credit department?
Managing collections activities
What is a potential outcome of setting credit policies?
Improved credit risk management
What is evaluated when determining creditworthiness?
Financial statements and credit history
Why does the credit department adjust credit limits and terms?
To minimize the risk of non-payment
What is involved in managing collections activities?
Sending out invoices and following up on late payments
What is the primary goal of the credit department?
Minimizing credit risk
What is a key aspect of the credit department's role in credit management?
Assessing credit risk
Study Notes
Importance of Credit Management
- Late payments by customers have implications on a company's creditworthiness.
- Credit and debt management are essential to running a business successfully.
What is Credit Management?
- It is a company's action plan to guard against late payments or defaults by customers.
- It involves a continuous, proactive process of identifying risks, evaluating their potential for loss, and strategically guarding against the inherent risks of extending credit.
Objective of Credit Management
- To demonstrate that a company is trustworthy, reliable, and responsible with money.
Credit Management and Business Success
- Granting credit is one thing, and collection is another, requiring close collaboration between the two.
- Effective credit management is crucial to prevent late payments and defaults, which can lead to business bankruptcies.
Credit Department
- The credit department plays a crucial role in credit management by assessing and managing credit risk.
- Key responsibilities of the credit department include:
- Evaluating creditworthiness of potential borrowers
- Setting credit policies and procedures
- Monitoring credit risk
- Managing collections activities
Credit Management Process
- Granting credit to customers
- Setting payment terms and conditions
- Recovering payments
- Ensuring customers comply with the company's credit policy
Learn about the importance of credit management in running a business successfully. Understand how to guard against late payments or defaults by customers and develop a proactive process to identify risks and evaluate potential losses.
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