Credit control is the system used by businesses and central banks to make sure that credit is given only to borrowers who are likely to be able to repay it. As such matters are rarely certain, credit controllers control lending by calculating and managing risk.
Credit control is part of the financial controls that are employed by businesses particularly in manufacturing to ensure that once sales are made they are realised as cash or liquid resources.
Credit control is a critical system of control that prevents the business from becoming illiquid due to improper and un-coordinated issuance of credit to customers. Credit control has a number of sections that include - credit approval, credit limit approval, dispatch approvals as well as collection process.
In a large business a credit process will be run by a senior manager and will include processes as such as Know Your Customer (KYC), account opening, approval of credit and credit limits (both in terms of the amounts and the terms e.g. 30 Days, 30 Days net), extension of credit and effecting collection action.
Credit control will normally report to the Finance Director or Risk Management Committee.
Procedures for issuing credit
During the selling process a potential customer or even a current customer who pays cash may request for credit lines to be extended. At this point the following process may be followed:-
1. Formal letter of application for credit to be extended to a customer entity
2. Head of Finance evaluates the credit requested
3. Risk managers evaluate if the credit fits in with the current risk portfolio
4. Credit Collection period (usually in Days) is considered both as a stand-alone and as a component of the working capital cycle in particular ensuring that it does not exceed the Payables Period (usually in Days too).
5. External rating agencies may be invoked to assess the risk attached to extending credit to the customer. Usually credit worthiness of a firm may be assessed independently by firms such as Dun & Bradstreet, Bloomberg, AC Nielsen or other reputable firms.
6. Fillers are also made into the market to assess the credit worthiness of a firm
7. An internal evaluation is made considering the risk of Bad or Doubtful Debts against the profit or returns.
8. After Risk Manager and Finance Director is satisfied that the extension of credit will not result in loss of principal. Credit is extended.
9. An account is opened with the credit setting set for the agreed terms: Cap of credit the customer will enjoy and the terms or duration which they will enjoy that credit. In other words, the time-limit as well as the value of the credit are sides of the same coin.
Non-collectibility of extended credit
Extended credit could, despite all efforts made, become noncollectable. In this case a professional Debt collection agency may be hired along with attendant legal, court and other fees. This event is normally dreaded and most Chartered Accountants are reluctant to consider that credit extended has now become noncollectable necessitating a debt write off if the receivable has gone bust or a provision if only a lower amount can ultimately be collected.
Risk of credit
Unwarranted debt may be a serious strain on the company and could lead to company failure. Many SMEs have failed due to unsatisfactory Debt Collection processes or procedures. During the credit crunch many businesses experienced a serious credit risk and severely curtailed extension of credit to partner firms and businesses. Even though the current situation is much less severe credit extension remains a key, pivotal role in business management.
Cornwall (/ˈkɔːrnwɔːl, -wəl/; Cornish: Kernow [ˈkɛrnɔʊ]) is a ceremonial county and Historic County in South West England. It is recognised as one of the Celtic nations and is the homeland of the Cornish people. The county is bordered by the Atlantic Ocean to the north and west, Devon to the east, and the English Channel to the south. The largest settlement is Falmouth, and the county town is the city of Truro.
The county is rural, with an area of 1,375 square miles (3,562 km2) and population of 568,210. After Falmouth (23,061), the largest settlements are Newquay (20,342), St Austell (19,958), and Truro (18,766). For local government purposes most of Cornwall is a unitary authority area, with the Isles of Scilly having a unique local authority. The Cornish nationalist movement disputes the constitutional status of Cornwall and seeks greater autonomy within the United Kingdom.
Cornwall is the westernmost part of the South West Peninsula. Its coastline is characterised by steep cliffs and, to the south, several rias, including those at the mouths of the rivers Fal and Fowey. It includes the southernmost point on Great Britain, Lizard Point, and forms a large part of the Cornwall National Landscape. The national landscape also includes Bodmin Moor, an upland outcrop of the Cornubian batholith granite formation. The county contains many short rivers; the longest is the Tamar, which forms the border with Devon.
Cornwall had a minor Roman presence, and later formed part of the Brittonic kingdom of Dumnonia. From the 7th century, the Britons in the South West increasingly came into conflict with the expanding Anglo-Saxon kingdom of Wessex, eventually being pushed west of the Tamar; by the Norman Conquest Cornwall was administered as part of England, though it retained its own culture. The remainder of the Middle Ages and Early Modern Period were relatively settled, with Cornwall developing its tin mining industry and becoming a duchy in 1337. During the Industrial Revolution, the tin and copper mines were expanded and then declined, with china clay extraction becoming a major industry. Railways were built, leading to a growth of tourism in the 20th century. The Cornish language became extinct as a living community language at the end of the 18th century, but is now being revived.