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.
Dorset (/ˈdɔːrsɪt/; archaically: Dorsetshire) is a county in South West England on the English Channel coast. The ceremonial county comprises the unitary authority areas of Bournemouth, Christchurch and Poole and Dorset. Covering an area of 2,653 square kilometres (1,024 sq mi), Dorset borders Devon to the west, Somerset to the north-west, Wiltshire to the north-east, and Hampshire to the east. The county town is Dorchester which is in the south. After the reorganisation of local government in 1974, the county's border was extended eastward to incorporate the Hampshire towns of Bournemouth and Christchurch. Around half of the population lives in the South East Dorset conurbation, while the rest of the county is largely rural with a low population density.
The county has a long history of human settlement stretching back to the Neolithic era. The Romans conquered Dorset's indigenous Celtic tribe, and during the Early Middle Ages, the Saxons settled the area and made Dorset a shire in the 7th century. The first recorded Viking raid on the British Isles occurred in Dorset during the eighth century, and the Black Death entered England at Melcombe Regis in 1348. Dorset has seen much civil unrest: in the English Civil War, an uprising of vigilantes was crushed by Oliver Cromwell's forces in a pitched battle near Shaftesbury; the doomed Monmouth Rebellion began at Lyme Regis; and a group of farm labourers from Tolpuddle were instrumental in the formation of the trade union movement. During the Second World War, Dorset was heavily involved in the preparations for the invasion of Normandy, and the large harbours of Portland and Poole were two of the main embarkation points. The former was the sailing venue in the 2012 Summer Olympics, and both have clubs or hire venues for sailing, Cornish pilot gig rowing, sea kayaking and powerboating.
Dorset has a varied landscape featuring broad elevated chalk downs, steep limestone ridges and low-lying clay valleys. Over half the county is designated as an Area of Outstanding Natural Beauty. Three-quarters of its coastline is part of the Jurassic Coast Natural World Heritage Site due to its geological and palaeontologic significance. It features notable landforms such as Lulworth Cove, the Isle of Portland, Chesil Beach and Durdle Door. Agriculture was traditionally the major industry of Dorset but is now in decline and tourism has become increasingly important to the economy. There are no motorways in Dorset but a network of A roads cross the county and two railway main lines connect to London. Dorset has ports at Poole, Weymouth and Portland, and an international airport near Bournemouth. The county has a variety of museums, theatres and festivals, and is host to the Great Dorset Steam Fair, one of the biggest events of its kind in Europe. It is the birthplace of Thomas Hardy, who used the county as the principal setting of his novels, and William Barnes, whose poetry celebrates the ancient Dorset dialect.