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Credit Control

​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.

Overview

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.

​London is the capital and largest city of England and the United Kingdom. It stands on the River Thames in south-east England at the head of a 50-mile (80 km) estuary down to the North Sea, and has been a major settlement for two millennia.[9] The City of London, its ancient core and financial centre, was founded by the Romans as Londinium and retains boundaries close to its medieval ones.[note 1][10] Since the 19th century,[11] "London" has also referred to the metropolis around this core, historically split between the counties of Middlesex, Essex, Surrey, Kent, and Hertfordshire,[12] which largely comprises Greater London,[13] governed by the Greater London Authority.[note 2][14] The City of Westminster, to the west of the City of London, has for centuries held the national government and parliament.

London, as one of the world's global cities,[15] exerts strong influence on its arts, commerce, education, entertainment, fashion, finance, health care, media, tourism, and communications,[16] and therefore has sometimes been called the capital of the world.[17][18][19] Its GDP (€801.66 billion in 2017) makes it the biggest urban economy in Europe,[20] and it is one of the major financial centres in the world. In 2019 it had the second-highest number of ultra high-net-worth individuals in Europe after Paris[21] and the second-highest number of billionaires of any city in Europe after Moscow.[22] With Europe's largest concentration of higher education institutions,[23] it includes Imperial College London in natural and applied sciences, the London School of Economics in social sciences, and the comprehensive University College London.[24] The city is home to the most 5-star hotels of any city in the world.[25] In 2012, London became the first city to host three Summer Olympic Games.[26]

London's diverse cultures mean over 300 languages are spoken.[27] The mid-2018 population of Greater London of about 9 million[5] made it Europe's third-most populous city.[28] It accounts for 13.4 per cent of the UK population.[29] Greater London Built-up Area is the fourth-most populous in Europe, after Istanbul, Moscow and Paris, with 9,787,426 inhabitants at the 2011 census.[30][31] The London metropolitan area is the third-most populous in Europe after Istanbul's and Moscow's, with 14,040,163 inhabitants in 2016.[note 3][4][32]

London has four World Heritage Sites: the Tower of London; Kew Gardens; the combined Palace of Westminster, Westminster Abbey, and St Margaret's Church; and also the historic settlement in Greenwich, where the Royal Observatory, Greenwich defines the Prime Meridian (0° longitude) and Greenwich Mean Time.[33] Other landmarks include Buckingham Palace, the London Eye, Piccadilly Circus, St Paul's Cathedral, Tower Bridge and Trafalgar Square. It has numerous museums, galleries, libraries and sporting venues, including the British Museum, National Gallery, Natural History Museum, Tate Modern, British Library and West End theatres.[34] The London Underground is the oldest rapid transit system in the world.