Credit Account Management is important for every business mostly the one that makes most of its sells on credit. Each business should understand that it is necessary to give credit to customers and the same time, it might be risky because it can affect the going concern of the business. For instance giving of credits attracts more customers to your business and increases you sales. But at the same time if the sales on credit increases, the business may suffer from bad debts which might collapse the business. In order to avoid all that, there must be Credit Account Management to regulate the amount of credit given to customers. Business Training in Kenya has more articles.
What is Credit Account Management?
Credit Account Management can be defined as monitoring and controlling of the amount of debts given to the business debtors or customers in order to avoid high debt ratio. Credit Account Management is an effective way of preventing high debts. In order to have an effective Credit Account Management, a business must have some requirements such as the organization experience in doing business, which will enable it to understand and know different customers for the purpose of readiness and promptness to pay debts as agreed. Secondly, the business must have IT infrastructure that will assist in the collection of debts. Thirdly, the business requires experienced officers in Credit Account Management. Lastly, the business must be committed to control its credit at all cost as long as the process will be beneficial.
Factors that influence Credit Account Management
Credit Account Management is done if there are some controls put in on the amount of debtors. Things put either to allow more debtors or to minimize the number of debtors are the one what we will say is Credit Account Management. The factors put to influence amount of debtors include;
- Level of sales of a business such that the bigger the business, the higher the sales therefore the level of debtors is expected to be higher.
- Credit policy. Credit policy is the measure that has been put to affect or control the amount of credit given by the business. the credit policies are;
- The quantity of trade accounts to be given by the business
- The period given to the debtor to repay the credit
- Discount given to encourage prompt payment of debt
A business credit policy determines the level or risks the business is willing to take over from the debtors. The control over the debtors may be lenient or liberal credit policy. Therefore it depends with which policy the business want to take for the its Credit Account Management.
- Terms of trade are also put to help with the Credit Account Management of the firm. There are two types of terms of sales a firm may have. That is the credit sales or the cash sales both of which may be used either to increase debtors of increase debtors.
Benefits of Credit Account Management to the organization
Credit Account Management helps the business control the number of debtors it has therefore avoiding so much sales on credit that may it had to continue operating because of lack of cash to do so. Credit Account Management helps the business to identify its loyal customers therefore it gives credit only to the customer who can pay in order to reduce the bad debts. Moreover, Credit Account Management defines the terms of trade the business can have since if the business cannot handle debtors, it will stick to cash sales.
Conclusion in Credit Account Management
Credit Account Management is necessary for any business in order to control the number of debtors it may have. With the Credit Account Management a business is able to avoid bad debts that may fail its operation. Therefore, it is advisable that businesses put measure that will bring the practice of Credit Account Management.