We introduced the credit management activity.

https://faoblog.com/processes-ar-credit-management/

So, in brief, credit management is primarily done to conduct an assessment of a customer’s financial and market standing and getting to a conclusion on the amount and period of credit that this customer can be extended.

Credit Management Process

The credit management process can be fundamentally be classified into two components,

  • For a new prospective customer
  • For an existing customer

Let me start with the easier part, credit management for an existing customer, as this activity is a good candidate for a back office / outsourcing operation.

The moment I say that it is an existing customer, it presumes that some point earlier, a detailed assessment would have been done for this customer. What would really be needed would be to do periodic assessments to ensure a risk minimized credit sales and a good relationship with this customer.

The type of activities that can be needed are:

  • Analytics around the payment patterns for the last few years
  • Analysis of defaults if any and the reasons thereof
  • Market dynamics of the customer’s business and global trends of his industry
  • Changes / challenges in the financial standing of the customer
  • Regulatory influences on the customer’s business
  • Competitive pressures and changes thereon
  • Availability of alternative suppliers to the customer and the terms offered by them

These are few indicators and there would be more depending on the business your client is in and his customers.

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