Credit Management And Issues Of Bad Debts In Commercial Banks:

The term 'Credit Management' refers to the process through which an entity sells its product or service or lends money to individual or entity on credit and also recovering of that credit amount when it's due.

Pre-requisites Of Credit Management:

In the modern day economy, credit has become the life blood. As such the importance of credit management has increased many folds. Credit management as a profession demands to have the capability to:

  1. Make regular assessments and should be utilised both before and during taking on new customers
  2. Primarily analyse and calculate the credit worthiness and integrity of an individual or entity.
  3. Calculate how prudent the person or entity is in spending or investing credit taken.
  4. Make a correct presumption if the individual or entity will be honouring its payment obligations in time in if any credit extended.
  5. Analyse the personal repo of the Board of Directors of the entity. See how any of the board members opine to any govt. rules and guidelines. Also see how much the board members are interested with regard to the future of the entity.
  6. See how ethically and professional the entity is managed in all terms true to its sense.
  7. Analyse how susceptible or vulnerable the company's business might be with regard to the political environment of the nation with special focus to the location of the business and product line of the entity.
  8. Calculate the worth of the business by analysing its strength and weakness in its product and also how the other competitors are doing be it a leading and weak business competitor.
  9. Keep a track of entity's banking transactions and see if the concern has any unfulfilled credit obligations with any bank or if any case has been filed or reported to credit bureau in relation to credit abuse or credit default.
  10. Have a specific collections procedure with regard to the business and potential. Normally it's different for different credit takers.

Objectives Of Credit Management:

The ultimate objectives of Credit Management are:

  1. To achieve monthly target including delinquent DSO (Calculate the average time from the invoice due date to the paid date), cash collection and business specific indicators
  2. To obtain payments due within the agreed payment term period.
  3. To establish and maintain interdepartmental relationships to support business objectives.
  4. To identify high risk accounts early using the process and policy established
  5. To maximise profit on profitable sales.