Effective Credit Management for Sales, Payment Reduction and Competitive Advantage

CREDIT MANAGEMENT 1
Credit Management
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CREDIT MANAGEMENT 2
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