Credit analysis and credit control enables businesses to maintain a consistent cash flow, avoid bad debt and minimize late payments, through effective accounting procedures. Credit is essential in the modern world and creates wealth, provided it is used wisely. The Global Credit Crisis during 2008/2009 has shown that sound understanding of underlying credit risk is crucial. If credit freezes, almost every activity in the economy is affected. The best way to utilize credit and get results is to understand credit risk. Advanced Credit Risk Analysis and Management helps the reader to understand the various nuances of credit risk.
Debt collection is a creditor’s attempt to recover consumer credit and loans that have not been paid back by a customer. Debt recovery is when a loan – such as a credit card balance – continues to go unpaid, and a creditor hires a third party, known as a collection service, to focus on collecting the money. Debt recovery is important because it is directly correlated to your credit score. If you are being contacted by a debt recovery service, it means there is a record that you have defaulted on a loan and currently have delinquencies. These delinquencies get reported to the credit bureaus, damaging your credit score, which can potentially hurt any future loan opportunities.
DEVELOPING CREDIT POLICIES
Definition: Credit Policy
A firm’s credit policy is the set of principles on the basis of which it determines who it will lend money to or gives credit (the ability to pay for goods or services at a later date).
In simple terms, the credit policy of a financial institution or business is a set of guidelines that highlight the following points–
- the terms and conditions for supplying the goods on credit
- customer credit worthiness
- collecting procedure
- precautionary steps in case of customer default
In economics, credit policy is government policy at a particular time on how easy or difficult it should be for people and businesses to borrow money and how much it will cost. This is done through change in interest rates.
Credit policy varies from firm to firm and is based on the particular business, cash flow circumstances, industry standards, current economic conditions and the degree of risk involved. It also has impact on performance, as a relaxed credit policy boosts sales but also increases defaults and bad debts whereas a conservative credit policy may restrict sales but will also minimize defaults.