The credit policies of a company They are necessary in today’s market, since although the best would be cash payments ,. Today it is necessary to apply a type of credit to improve sales.
They are locations that include a deferred payment on an invoice taking into account its total amount or that amount is divided into installments.
What are the credit policies of a company
In this way as credit policies of a company, decides to offer loans to the client, for which it is necessary to carry out a good analysis regarding the profitability of the loan and the risk that this confers.
If the company does not intend to have good credit policies, it runs into trouble when it encounters unpaid invoices because they were not collected in cash or in cash.
In this sense, proper management of accounts receivable is important because they allow the analysis of future financial need, taking into account the financing that must be sought if it perceives arrears in payments.
However, the credit offered to customers is essential for the growth of the company and the marketing of its products.
What does the credit policies of a company include
- Specification of the maximum expiration of the invoices, the most common is 30, 60 and 90 days.
- Rules clearly established on the client’s most basic solvency and if the client’s company does not cover the established solvency, the credit that he requested will not be granted. At the same time, it includes the maximum of the credit limit that should never be exceeded.
- The collection policy with a clear procedure to track unpaid invoices, whether it is done internally or externally, mercerizing the collection monitoring.
- The collection cycle can be faster by offering customer discounts for prepayment or cash without vindictively influencing the sales margin.
Patterns of a company’s credit policies
The credit policies of a company follow certain patterns such as:
- The customer is granted a line of credit in accordance with what was authorized by the general management of the company.
- It should be established that this line of credit can never exceed the purchases made by the customer.
- The date and term of the payment of the credit granted is established from the date of issuance of the invoice, considering the working or running.
- It is established whether once the credit line is granted, the client can request and how to request the extension of the credit and the payment term.
- In the event that the client changes his business name, he must communicate it immediately so as not to be considered as a new client.
- The credit line can be suspended due to a delay in the payment of the credit until it fulfills its commitment and it will be considered delinquency for a new loan application.
- If the delay in payment is repeated several times, it will be a consequence for a canceled credit line according to the criteria applied by the collections department.
- If the customer pays the credit more than once by check and they are returned, the line of credit will be canceled and from now on they will only be able to make their purchases in cash.
Credit and collection policies of a company
Credit and collections policies are what allow the collection and credit department to interact with clients in order to maintain a reliable portfolio.
In this way, the company can meet its commitments without problems of late payments from customers who have been granted a line of credit. The company management is the one that must indicate the rules in writing with everything that should be done and not done, for example:
- It must include the maximum time to make the payment.
- Both the minimum and maximum terms must be determined based on the terms granted by other companies and the investment in accounts receivable.
- It must include an incentive based on a quantity discount.
- You can include a discounted incentive on some products that have lower-than-expected sales volume.
- Includes the minimum number of products to offer a discount and grant the credit.
- Establishes the maximum amount that will be granted as initial credit for new clients according to the credit evaluation.
- The requirements for the extension of credit are established.
Example of credit policies
- The goals that the organization aspires to achieve are identified.
- The credit policy guidelines are established with drafts.
- The guidelines with the corresponding area are discussed and reviewed.
- Credit policies are definitely written.
- It is raised to management for approval.
- It is disseminated to all sectors of the company, especially those responsible for executing them.
- The credit policy already approved and disseminated within the company is implemented and put into operation.
- The results that have been obtained are controlled, checking that the established gates benefit the achievement of the objectives and measures are taken to correct them if necessary.
Example of credit policies of a commercial company
1.First of all, the mission must be defined, for example it is up to the credit department to establish good policies so that the quality of accounts receivable can be maintained in the best way.
Credits will be provided to applicants as long as they meet the established requirements and in the case of clients suspected of delinquency, they will be eliminated from the granting of credit.
- The objective is established with the steps for extension, grant, negotiation and elimination or its revocation.
- Specific objectives are established such as establishing the collection in a medium and maximum term for each client, establishing a percentage of uncollectible accounts, updating the review of accounts and credits that were assigned.
- The scope and conditions of sale that will be applied to the client according to each category are established, whether they are large clients, chain clients or small clients with their percentage of sales.