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Why Credit Management Services Are Essential For Any Business?

The credit management function of any company is a comprehensive and substantial process in ensuring that the respective customers of a firm pay their invoices in the due course of time. This payment must also be completed within the confinements of the agreed terms and conditions. Credit Management services must be effective in order to prevent late payment or non-payment of dues. Getting this essential process correct ensures a viable financial standing of a company as well as a workable liquidity position. This is critical in ensuring the success of any business. Elucidated below is the reason as to why the credit management process is vital:

Importance:

Some companies have dedicated teams to bring in new clients however; many are unable to convert these new clients into a form of ‘paid deals’. Experts have stated that over 50% of the bankruptcies vis-à-vis companies are due to bad credit management. This staggering statistic only exemplifies the importance of credit management. Credit management as a process extends far beyond than just reminding the customers to pay. The process of credit management entails the detection of the possible rationale of non-payment or late payment and inspecting if there was an issue regarding the product or service or a combination of both provided by the concerned company. It is of note that even minor details in the invoicing can lead to discrepancies resulting in the non-payment of dues. Thus, credit management is a process which includes:

  • Prognosticating the customer/client’s credit rating
  • Maintaining positive and mutually beneficial customer relations
  • Improving the DSO of the company
  • Detecting the possibility of late payments
  • Improving the customer service
  • Preventing the rise of bad debts

Benefits of Credit Management Services:

If implemented correctly, credit management directly aids in the process of attaining additional profits by virtue of lowering late or non-payments, improving the general cash flow of the company and reducing the chance of DSO. Furthermore, it is of note that when a company’s cash flow statement improves – the additional cash thus attained can be used in investments or acquisitions and by virtue of this creates a favorable image of the company with the investors and other relevant members of the business world.

Credit Management Systems Required For the Process:

1. Acceptance System – based on the available credit data of your client, your company can determine whether or not to accept a new client. This can be either an automated or a manual process.

2. Invoicing System – Invoices can be sent at regular intervals to remind the customers of an upcoming payment.

3. Bookkeeping System – All receivables and payables of the company are corded in this system process which is the essential basis for insight into the finances of the given company.

In conclusion, it can be stated that the credit management process is a vital process for a company to maintain and further its financial standing in front of the investors. Moreover, by virtue of this process companies can keep a regular track of all those clients who haven’t paid and accordingly send them a reminder for the payment of the accrued dues.

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