Running Header: Credit Control And Debt Management credit Control And Debt Management

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Running header: Credit Control and Debt Management

Credit Control and Debt Management

Credit and Debt Management

Introduction

Each company or individual enterprise work and design a set or policy measures to minimize costs associated with the expansion in credit while increasing benefits from it, these sets of measures are known as Credit management system. To ensure that, each corporation should have a clear defined management program.

The following were identified as simple requirements for a good credit management system by Mc Larey (1994). These include; developing an effective credit policy, assessing the potential clients creditworthiness, developing an efficient administration of debts and developing a plan on bad debts and consider offering discounts for prompt payment and identifying relevant ratios to use.

Pandey (1993/ 2003) put forward that proper credit score management depends on three credit policy variables; credit standards, credit terms and collection policy. The above decision variables are used as a basis for selection of credit applicants. There are also two proposed credit policy alternatives a business entity may adopt. These are lenient or stringent credit policies. Any business using a lenient credit policy tends to sell to clients on very liberal standards and terms. Credit may be provided for a longer time even to those clients whose credit reliability is not fully known.

Unlike a lenient credit policy, astringent policy enables a business to sell on credit score following highly selective basis by considering only customers with proven creditworthiness. In practices however, business tend to follow a credit plan which is not lenient or stringent. They consider an optimum credit policy that maximizes the entity's value, that is to say that incremental cost of funds is equal to the incremental rate or return on investment. A proper credit management system leads the firm to attain both liquidity and profitability objectives while an improper credit management system affects both objectives of liquidity and profitability.

Discussion

Credit Control and Debt Management Principles

• To recognize late dealings

• Review client account details

• Observe activity

• Resolve late and debated transaction

• Change the customer's account

Credit Management

All business and firms by nature are involved in selling either services or goods to the clients, Keown (1985). Some of the sales are made directly against cash while majority of them involve selling on credit. When credit sales are made, the receivables of the firm increases, meaning there will be shortage of cash inflow in the short run in the firm. Therefore in relation to its operations the firm may not perform as expected. Credit management system is important because its saves time by answering the issues discussed over and again each time a decision is to be made, Pischked (1992). He emphasized that the decisions should be fair and consistent, to let people under similar problems get benefited.

Effective credit control system guidelines

Among other procedures Manasseh (1990) identified efficient credit control policy as one, collecting credit information. This let the firm to assess the creditworthiness of potential clients before increasing credit to them by collecting information about the client from various sources. The firm may hire an expert ...
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