Credit Management: Challenges in a Competitive Business Environment

This report delves into the critical aspects of credit management within a competitive business environment. It begins by identifying major challenges faced by organizations, such as balancing competitive credit policies, managing consumer risk, and adapting to fluctuating market conditions. The report then explores how technology can be utilized to improve credit management practices. Specifically, it highlights the benefits of big data analytics in risk assessment and data storage, as well as the advantages of tailored software in streamlining financial processes and ensuring efficient credit tracking. The report provides valuable insights into developing effective credit policies and leveraging technological advancements for enhanced financial performance, offering a comprehensive overview of credit management strategies and solutions. It also references various sources to support its claims and findings.

Running head: CREDIT MANAGEMENT
Credit management
Name of the Student:
Name of the University:
Author Note:

1CREDIT MANAGEMENT
Table of Contents
Question no. 1. Major challenges that business organisations face in developing a sound credit
policy within a competitive business environment..........................................................................2
Question no. 2. Two ways that technology can be utilize to improve credit management.............3
References........................................................................................................................................5

2CREDIT MANAGEMENT
Question no. 1. Major challenges that business organisations face in developing a sound
credit policy within a competitive business environment
Answer: Credit policy plays the key role in terms of enabling a business organisation to operate
its business proceedings smoothly as well as effectively. Chiefly, policies are to make in order to
maintain a systematic procedure that ensures smooth flowing of business activities. Similarly,
credit policy is essential for a business organisation in terms of preventing confusions and
misconstructions at the same time. However, there are major challenges that organisations often
face in developing a sound credit policy within an aggressive competitive market.
Balancing with other competitors – It is widely tacit fact that different business
organisations have different set of credit policies. Moreover, there are possibilities those
effective and profitable business organisations might follows a credit policy that is convenient to
the buyers and easy for them to make repayment (Abu Hussain and Al-Ajmi 2012). For example,
organisations that sells and manufactures electronic appliances has a easy and convenient credit
policy as their sales rate flows higher to average around the year. On the other hand, they follows
proficient credit management techniques such as use of technology such e-invoice statement and
electronic payments. Thus, such electronic appliance-manufacturing firms are confident enough
in acquisition of credits from their buyers and they have an effective credit management
procedure (Moffett, Stonehill and Eiteman 2017).
Consumer risk – Consumers has a diverse nature in terms of conduct as well as
perception. They are the end users of any product or service that any business organisations
particularly offer to them. Concerning to such fact, there are certain consumer who behaves
negatively and does not bother about making the re-payment of their dues. This creates a

3CREDIT MANAGEMENT
challenging environment for the credit managers while developing a definite credit policy for
that matter. Thereby, since the negative behaviors of such consumers augment constant risks of
loss, it creates a big challenge for the organisations to draft an effective credit policy. However,
on the other hand, organizations cannot be so rigid to every consumer by making assumption of
their behavioral prospects, for that aspect, they offer credits to consumers in order to grow
business and enhance profit maximization motives (Kruppa et al. 2013). For instance, in banking
sector customers often makes negligence to re-pay the loans due in their account.
Market conditions – Market conditions is another challenge that business organisations
come across while developing credit policies. It is of obvious understanding that market
conditions fluctuates from time to time. There are possibilities that the sales rate may go higher
when the demand of product rises comparatively high (Van Deventer, Imai and Mesler 2013).
For example - During summer seasons, the demand of air conditioners rises comparatively high
as compared to the rest of the seasons. In order to meet the demand and with a motive to earn
profit, companies need to offer credit to satisfy its customers positively, if not done there would
massive loss of image as well as decline in firm’s efficiency level. Considering such fact,
identifying the market condition and proceed forward with strategic steps to manage credits
would be effective and that would assist in cater positive outcome (Moti et al. 2012). Hence,
organisations face challenge to develop an effective credit policy concerning the market
condition that affects the development of credit policy unconstructively.

4CREDIT MANAGEMENT
Question no. 2. Two ways that technology can be utilize to improve credit management
Answer: In this modern era where technology plays the crucial role in enhancing life constantly,
it has created several aspects easier to deal with. Considering such fact, credit management’s
efficiency has experienced massive augmentation in terms of catered effectiveness.
Big data analytics – Credit managers often face challenges in creating a database of
creditors as well as following up the debts from suppliers and buyers. On the other hand, it
becomes harder to store critical and important information of the debtors. This creates issues in
analysing the pending payments from the database that has been stored in big data as well as it
helps in scrutinizing the risk assessment process effectively. Yet, with the assistance of big data
analytics, credit management gets easier in terms of risk assessment and storing vast amount of
critical data (Gandomi and Haider 2015). Moreover, with the latest trends of technology and
utilization of this method has enabled several business organisations to operate proficiently with
minimization of errors as well as loss.
Tailored software – It is of clear understanding that every organisation has different sort
of business and requires different type of software that the developers customizes them as per the
organizational needs. Thereby, designing effective credit management software that would cover
every requirement of the organization’s proceedings would provide immense assistance to keep a
track on the financial events proactively. There are many advantages of using the tailored
software or the customer software. It can be easily designed to specifically meet the user’s needs.
it saves the company from the expense of buying another piece of software. Rather this software
does everything that the company needs to do in order to manage the credit efficiently. It is also
very easy to make changes or any modifications and the process of making these changes is
easier in comparison to the other standard software. This software contains only the relevant

5CREDIT MANAGEMENT
parts that the users need and there are also no irrelevant parts that might otherwise confuse them.
Another important aspect is that the customized software or the tailored software can be used by
the companies as per their particular needs. This makes it very which user friendly and helpful.
For example, an application developed for JPMorgan Company will be used particularly by that
department only. It also increases the safety of the company. It would accurately concerns about
the buyer’s transactional records, amount outstanding, accounts receivables; periodic cash flows
and so on (Siddiqi 2012). This method been considered as an effective way to manage credits of
a business organisation efficiently and has generated win-win situation in maintaining
relationships with clients and ensured smooth cash flows positively.

6CREDIT MANAGEMENT
References
Abu Hussain, H. and Al-Ajmi, J., 2012. Risk management practices of conventional and Islamic
banks in Bahrain. The Journal of Risk Finance, 13(3), pp.215-239.
Gandomi, A. and Haider, M., 2015. Beyond the hype: Big data concepts, methods, and
analytics. International Journal of Information Management, 35(2), pp.137-144.
He, G., Lu, Y., Mol, A.P. and Beckers, T., 2012. Changes and challenges: China's environmental
management in transition. Environmental Development, 3, pp.25-38.
Kruppa, J., Schwarz, A., Arminger, G. and Ziegler, A., 2013. Consumer credit risk: Individual
probability estimates using machine learning. Expert Systems with Applications, 40(13),
pp.5125-5131.
Moffett, M.H., Stonehill, A.I. and Eiteman, D.K., 2017. Fundamentals of multinational finance.
Pearson.
Moti, H.O., Masinde, J.S., Mugenda, N.G. and Sindani, M.N., 2012. Effectiveness of credit
management system on loan performance: Empirical evidence from micro finance sector in
Kenya. International Journal of Business, Humanities and Technology, 2(6), pp.99-108.
Siddiqi, N., 2012. Credit risk scorecards: developing and implementing intelligent credit
scoring (Vol. 3). John Wiley & Sons.
Van Deventer, D.R., Imai, K. and Mesler, M., 2013. Advanced financial risk management: tools
and techniques for integrated credit risk and interest rate risk management. John Wiley & Sons.