Learn something new every day
More Info... by email
Also known as credit management, credit control is a term used to describe the process of evaluating the level of risk associated with potential customers and assigning credit privileges to those customers accordingly. This means that two goals must be achieved with credit control. Sales revenue must be increased by approving customers who present little in the way of credit risk and encouraging them to make use of that line of credit. At the same time, the credit management process also seeks to identify potential customers who do present a significant amount of risk, and either impose a lower credit limit on their accounts or deny credit privileges altogether.
When used effectively, credit control helps to keep the overall risk assumed by the creditor within a reasonable range. Doing so has the effect of preventing a great deal of stress on the business in terms of its current debt load. A balanced approach to the task will position the company so that even if a few of the higher-risk customers do default on their account balances, the damage done to the bottom line of the company is kept to a minimum. The business remains viable and is able to provide goods and services to other clients without fears of being unable to meet its obligations.
With many companies, the process of credit control is assigned to a specific department within the overall operational structure. Assessing the creditworthiness of a prospective client is normally the task of either a member or group within the overall accounting team, but may also be a function of a risk management division or department. Smaller companies are more likely to bundle the task of qualifying potential clients for credit privileges into the general accounting function, while larger corporations may operate a separate credit management department. In both scenarios, the decisions made by the credit control team will be in harmony with the credit control policy developed and put in place by the owners and managers.
Depending on the nature of the business, there may be some variance in how those credit control policies are written, and what criteria a customer must meet in order to secure credit privileges. Some businesses actually focus on consumers who are higher credit risks, especially those who have gone through a period of financial reversal and are showing signs of overcoming those past obstacles. Here, the company may choose to extend limited credit privileges along with a slightly higher rate of interest on any balances carried from one billing period to the next. Over time, as the customer responsibly manages the credit account, the company may choose to increase the credit line, while also submitting positive feedback to the various credit agencies.
One of our editors will review your suggestion and make changes if warranted. Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Thank you for helping to improve wiseGEEK!