A mechanism for good credit control

Credit control refers to a system used by companies to ensure that credit is given to eligible customers who can pay within the agreed payment period. It is a small section of the financial control system used by businesses to ensure that a sale is released when the amount is paid.

The purpose of credit control is to ensure that companies do not become illiquid as a result of uncoordinated issues of credit to clients. It is a significant control system as it enables the avoidance of lending or credit issues to unworthy customers in the industry.

Credit control is a detailed control system that has proven its effectiveness in many ways. In fact, it is very accurate in the approach used in the issuance of credit. The credit procedures must be followed and approved by top management before being released. Essentially, a good system includes the following sections; credit approval, credit limit approval, and dispatch approvals. In larger companies, the process involves the overall manager, and different terms have been used to describe the process. The credit process takes a specified duration before the collection date, and the credit processes involve knowing your customer, opening an account, approving and credit amount.

The process involves using credit from the customer and evaluating the credit request from the finance department. Risk managers are sometimes consulted to evaluate the risk and the established credit collection period. These processes are applied before extending credit to a customer to avoid the risk of default which can result in huge financial losses. Credit control is very important for small businesses because they need to be able to give credit to customers who can pay and pay on time.

In addition, credit checks allow small businesses to maintain the required financial liquidity as it may not be impossible to convert stock to one day. Issuing credit is risky, but at the same time, it can stimulate the growth of a small business. It does this by increasing sales and bad debts that would result if there is no effective credit control system. Credit control therefore ensures that the company has an improved and consistent cash flow that enables the smooth running of the organization’s activities.

Proper cash flow management facilitates efficiency and promotes accountability in a business. In fact, credit control avoids issues related to debt collection. Debt collection can strain your business and lead to business failure. It is time consuming and expensive and can result in great financial loss if the customer does not make payment. Such breaches have failed many small businesses. In addition, proper control of cash flow ensures that the company’s activities are continuously financed because the company cannot lack the finances to carry out operations.

Credit control is therefore very critical for any business, especially those in the manufacturing industry. It promotes customer loyalty and companies use the strategy to explore new markets where competition is very stiff. Finally, caution should be exercised in the selection of creditworthy customers to avoid bad debts and to facilitate proper control of cash flow in a business.