Credit Management is the process of granting credit to the company’s customers, setting the terms, collecting payments for this credit when it’s due and ensuring compliance with the established credit policy of the company. A standard operating procedure should be well-defined and ensures that the company has an adequate allowance for doubtful accounts.
Over the years, the Credit Department has evolved in three generations. The first generation was highlighted when the credit staff still uses manual ledgers, calculators, card files, and spreadsheets. The department is usually headed by an accountant and a credit manager. The volume of manual ledgers finds it very hard to obtain current information. In this stage, accounts receivable records are accessible only at the operation location, demanding that local individuals perform all the normal functions of the credit department. The advent of computers dramatically altered the operations of the credit function. An order entry system updated the accounts receivable system and cash application was performed through batch processing. A credit officer has an immediate up-to-date information. In this stage, the credit and cash application functions are centralized. Reports are standardized and updated automatically. With the new technology, the third generation has significantly improved. Credit Department realized the benefits of a database and data science being an information source and a decision-maker. Corporate policies can be preset and monitored through automated methods.
Know Your Customers (KYC).
KYC is the
process of identifying and verifying the background of the borrower when applying for credit. This should be done periodically over time.
Meaning, the creditor should be able to establish that their clients are really they are who they claim to be. Background checks should be
conducted thoroughly. The persona behind the borrower company should be
known. The credit history of the borrower company should be validated.
Financial capabilities should be established and analyzed. Data
analytics should be utilized to present a borrower’s credit report. It
is very hard to make important decisions when you feel you are in uncharted territory. Some companies have used credit evaluation as a
tool to generate more sales but do not regard to knowing their
customers better. This will result in credit uncertainty or poor payment experience. Other credit managers have made unwise decisions based
solely on their guts and the information on what the borrower had
written in the Credit Application Form. While customers may have
acquired financial stability, character plays a very important role such as paying habits and reputation. This function can be outsourced to
professionals like Inteliasia Credit Investigation Services so that your company can focus on your core
business. Let us handle the KYC by employing the time-tested experience
we have had in this field for several decades now.