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.
Devon(/ˈdɛvən/, also known asDevonshire) is acountyofEngland, reaching from theBristol Channelin the north to theEnglish Channelin the south. It is part ofSouth West England, bounded byCornwallto the west,Somersetto the north-east andDorsetto the east. The city ofExeteris thecounty town. The county includes the districts ofEast Devon,Mid Devon,North Devon,South Hams,Teignbridge,TorridgeandWest Devon.PlymouthandTorbayare each geographically part of Devon, but are administered asunitary authorities.Combined as aceremonial county, Devon's area is 6,707 km2(2,590 square miles)and its population is about 1.1 million.
Devon derives its name fromDumnonia(the shift frommtovis a typicalCeltic consonant shift). During theBritish Iron Age,Roman Britainand theearly Middle Ages, this was the homeland of theDumnoniiBrittonicCelts. TheAnglo-Saxon settlement of Britainresulted in the partial assimilation of Dumnonia into theKingdom of Wessexduring the eighth and ninth centuries. The western boundary with Cornwall was set at theRiver TamarbyKing Æthelstanin 936. Devon was later constituted as ashireof theKingdom of England.
The north and south coasts of Devon each have both cliffs and sandy shores, and the county'sbayscontainseaside resorts,fishing townsandports. The inland terrain is rural, generally hilly and has a lower population density than many other parts of England.Dartmooris the largest open space in southern England, at 954 km2(368 square miles);itsmoorlandextends across a large expanse ofgranitebedrock. To the north of Dartmoor are theCulm MeasuresandExmoor. In the valleys and lowlands of south and east Devon the soil is more fertile, drained by rivers including theExe, theCulm, theTeign, theDartand theOtter.
As well as agriculture, much of theeconomy of Devonis based ontourism. The comparatively mild climate, coastline and landscape make Devon a destination forrecreation and leisure in England. Visitors are particularly attracted to the Dartmoor and Exmoornational parks; its coasts, including the resort towns along the south coast known collectively as theEnglish Riviera; theJurassic CoastandNorth Devon's UNESCO Biosphere Reserve; and the countryside including theCornwall and West Devon Mining Landscape.