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.
Skegness (/ˌskɛɡˈnɛs/ skeg-NESS) is a seaside town and civil parish in Lincolnshire, England. On the Lincolnshire coast of the North Sea, the town is 43 miles (69 km) east of Lincoln and 22 miles (35 km) north-east of Boston. With a population of 19,579, it is the largest settlement in the East Lindsey district; it also incorporates Winthorpe and Seacroft, and forms a larger built-up area with the resorts of Ingoldmells and Chapel St Leonards to the north. The town is on the A52 and A158 roads, connecting it with Boston and the East Midlands, and Lincoln respectively. Skegness railway station is on the Nottingham to Skegness (via Grantham) line.
The original Skegness was situated farther east at the mouth of The Wash. Its Norse name refers to a headland which sat near the settlement. By the 14th century, it was a locally important port for coastal trade. The natural sea defences which protected the harbour eroded in the later Middle Ages, and it was lost to the sea after a storm in the 1520s. Rebuilt along the new shoreline, early modern Skegness was a small fishing and farming village, but from the late 18th century members of the local gentry visited for holidays. The arrival of the railways in 1873 transformed it into a popular seaside resort. This was the intention of the 9th Earl of Scarbrough, who owned most of the land in the vicinity; he built the infrastructure of the town and laid out plots, which he leased to speculative developers. This new Skegness quickly became a popular destination for holiday-makers and day trippers from the East Midlands factory towns. By the interwar years the town was established as one of the most popular seaside resorts in Britain. The layout of the modern seafront dates to this time and holiday camps were built around the town, including the first Butlin's holiday resort which opened in Ingoldmells in 1936.
The package holiday abroad became an increasingly popular and affordable option for many British holiday-makers during the 1970s; this trend combined with declining industrial employment in the East Midlands to harm Skegness's visitor economy in the late 20th century. Nevertheless, the resort retains a loyal visitor base and has increasingly attracted people visiting for a short holiday alongside their trip abroad; tourism increased following the recession of 2007–09 owing to the resort's affordability. In 2011, the town was England's fourth most popular destination for UK residents, and in 2015 it received over 1.4 million visitors. It has a reputation as a traditional English seaside resort owing to its long, sandy beach and seafront attractions which include amusement arcades, eateries, Botton's fairground, the pier, nightclubs and bars. Other visitor attractions include Natureland Seal Sanctuary, a museum, an aquarium, a heritage railway, an annual carnival, a yearly arts festival, and Gibraltar Point nature reserve to the south of the town.
Despite the arrival of several manufacturing firms since the 1950s and Skegness's prominence as a local commercial centre, the tourism industry remains very important for the economy and employment. Its low wages and seasonal nature, along with the town's aging population, have contributed towards high levels of deprivation among the resident population. Residents are served by five state primary schools and a preparatory school, two state secondary schools (one of which is selective), several colleges, a community hospital, several churches and two local newspapers. The town is home to the divisional police headquarters, a magistrates court and a lifeboat station.