Credit Management

Credit Management is a branch of accountancy, and is a function that falls under the label of "Credit and Collection' or 'Accounts Receivable' as a department in many companies and institutions.They will usually deal with the credit vetting of customers, the resolution of any invoice queries or disputes, allocations of payments or cash application, internal fund movements, reconciliations and also maintaining positive working relationships with customer during the debt collection or credit review and approval process.

A key requirement for effective revenue and receivables management is the ability to intelligently and efficiently manage customer credit lines or credit limits. In order to minimize exposure to bad debt, over-reserving, and bankruptcies, companies must have greater insight into customer financial strength, credit score history and changing payment patterns. Likewise, the ability to penetrate new markets and customers hinges on the ability of a company to quickly make well informed credit decisions and set appropriate lines of credit.

Credit Management has evolved now from being a pure accounting function into a front-end customer facing function. It involves screening of customers and only those who are credit worthy are allowed to do business. A sound review of the financial position of the customer, and understanding of their business model is the first step in ensuring that the company does not end up selling to a customer who ends up seriously delinquent or in default.

Hence, before the sales function commences its business with the particular customer, the credit management role begins. Later as the customer starts dealing with the company, the accounts receivable function is used to ensure recovery as per agreed terms of credit is followed.