Controlling Credit
Introduction
This checklist deals with the control of credit allowed to customers and clients for goods and services. Credit control is a vital component in the process of controlling cash flow. Many companies have failed in the past because management did not understand the distinction between profitability and cash flow. An otherwise profitable enterprise can fail if it runs out of readily available funds with which to meet its commitments. Failure to control credit is a frequent cause of this situation.
When debts are outstanding, the supplier's funds are being used to finance customers' or clients' businesses rather than their own business.
The granting of excessive levels of credit, whether in terms of amount or duration, can also have an impact on profits, even if funds are readily available. There are many clear benefits to having resilient and robust systems and methods of credit control in place and these include: the prevention of, or at least a reduction in bad debts the effective control of cash flow - credit control plays a major part in this a contribution to improved returns on capital and net profit a contribution to an enterprise's ability to grow, or to survive in times of difficulty.
Future Practice Owner.
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