We talked about some things that need to be done for credit management for existing and new customers.

http://faoblog.com/processes-ar-credit-management-3/

Now the question is, what are the end goals of doing all the analysis we talked about in the last two posts.

The end goals would comprise of determining the following:

  • The amount of credit that can be given to the said customer
  • The duration of the credit
  • Grace period for occasional payment defaults
  • Clauses for default definition
  • Penalties and interest components for defaults
  • Period for which these terms will be valid
  • Review frequency
  • Credit termination clauses, containing events that may lead to termination
  • Requirements for contracts and guarantees for extending such credit

So you see that credit management is not really a simple job. Most of the complexities are high.

Normally, the preparation activities are moved to a back office or outsourcing center. Often, isolated research activities are moved and then a team at the client’s end will need to put the information together.

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