Critical Reflection: Credit Management, Sales, Payments, Advantages

This essay critically reflects on the effectiveness of credit management in enhancing a company's ability to increase sales, reduce late payments, and gain a competitive advantage. It emphasizes the importance of a well-defined credit policy, regular creditworthiness checks, and clear payment terms. The essay also highlights the necessity of consistent debt collection efforts and the potential risks of overlooking credit control, especially for emerging companies. By effectively managing credit, businesses can attract customers, diversify risk, and maintain a competitive edge in the market, ensuring long-term financial stability and growth. Desklib provides access to similar solved assignments and study resources for students.

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Credit Management
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Critical reflection on how effective credit management affects companies' ability to
increase sales, reduce late payment and gain competitive advantages.
Many businesses give credit to their customers. Extending credit is an essential tool
for attracting customers. How to manage credit given to customers is an integral part of credit
management. People who owe the business money (debtors) are an essential part of cash
inflows, and if poorly managed it can have adverse effects on the business. One of the critical
tools for proper credit management is a credit policy. A Company’s board of directors should
come up with credit criteria. Credit policy should be used in determining who is worthy of
credit, and the means of payment. These policies need to be written down and should always
be updated based on the creditworthiness of different customers. This policy should be well
known to all sales agents, financial controllers and the board (Irum, Rehana, & Muhammad
2012). Companies also need to ensure credit in practice (Edwards, 2010). This is where they
have to start their credit decision by first meeting their prospective client. If it is possible the
company should first give small loans. This will help in diversifying risk. On the other hand,
an account form should be used when agreeing on the terms of payment.
Businesses can offer credit and still ensure competitive advantage by making sure that
they provide credit to creditworthy customers. They need to carry checks on customers to
make sure that they are creditworthy (Finaly, 2010). Some of the different ways of doing this
is asking the customer for references from suppliers (Edwards, 2010). A follow-up call needs
to be made to the said companies. The business may also ask the customers to provide some
bank references. Checks of this kind will give better information on whether to extend credit
to the customer all not.
Some other ways in which credit managers can ensure proper management of debt is
coming up with rules. In the business world when one agrees to do business with the

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customer, the payment provisions need to be on your terms (Finaly, 2010). However,
payments negations' usually demonstrate the balance of power between the customer and the
supplier (Paul, 2010). However,, if a customer is a large company placing major orders then
it is possible for it to dictate terms. For example, it might choose to pay the loan in 60 days'
time instead of 30. Agreeing on terms of payment is one thing while policing that agreement
is another thing. For example, a company may decide that a loan should be paid within 60
days and the customer chooses to pay after 70 days (Irum, Rehana, & Muhammad 2012). One
late payment from the customer may not bring much trouble, but for many customers, it
might bring a lot of issues. Thus credit manager needs to chase for debts (Paul, 2010)
consistently. The credit manager needs to make sure that a reminder call is made somewhere
close to the due date. This is where Knowledge of customers is necessary because each has
his procedure and due date.
Most of the upcoming companies usually overlook credit control. However, proper
credit management is an essential issue in every stage of the business because nothing can
kill a well-performing company like poor credit management (Finaly, 2010).

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Reference List
Edwards, B. (2010). Credit management handbook. (Online) Aldershot, Hants, England,
Available From: Gower.http://site.ebrary.com/id/10209134. (Accessed 30th October 2018)
Finaly, S. (2010). The Management of Consumer Credit: Theory and Practice. (online)
London: Palgrave Macmillan. Available From: http://www.worldcat.org/title/management-
of-consumer-credit-theory-and-practice/oclc/1018210695 (Accessed 30th October 2018)
Irum, S., Rehana, K. & Muhammad, A. (2012). Determinants of Non-Performing Loans:
Case of US Banking Sector. The Romanian Economic Journal, (online). Available From:
http://www.rejournal.eu/sites/rejournal.versatech.ro/files/issues/2012-06-02/556/15-
determinantsofnon-performingloanscaseofusbankingsector.pdf (Accessed 30th October 2018)
Paul, S. Y. (2010). Strategic trade credit: an empirical study. Saarbrücken, VDM Verlag Dr.
Müller.

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