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.
Sleaford (historically known as New Sleaford) is a market town and civil parish in Lincolnshire, England. Since 1973, the parish boundaries have included Quarrington to the south-west, Holdingham to the north and Old Sleaford to the east – contiguous settlements and former civil parishes which, with New Sleaford, had formed an Urban District. The town is on the edge of the fertile Fenlands, about 11 miles (18 kilometres) north-east of Grantham, 16 mi (26 km) west of Boston, and 17 mi (27 km) south of Lincoln. With a population of 17,671 at the 2011 Census, the town is the largest settlement in the North Kesteven district. Bypassed by the A17 and the A15, it is connected to Lincoln, Newark, Peterborough and King's Lynn. Sleaford railway station is on the Nottingham to Skegness (via Grantham) and Peterborough to Lincoln Lines.
The first settlement formed in the Iron Age where a prehistoric track crossed the River Slea. It was a tribal centre and home to a mint for the Corieltauvi in the 1st centuries BC and AD. Evidence of Roman and Anglo-Saxon settlement has been uncovered. In the medieval period, records differentiate between Old and New Sleaford, the latter emerging by the 12th century around the present-day market place and St Denys' Church; Sleaford Castle was also built at that time for the Bishops of Lincoln, who owned the manor. Granted the right to hold a market in the mid-12th century, New Sleaford developed into a market town and became locally important in the wool trade, while Old Sleaford declined.
From the 16th century, the landowners were the Carre family, who operated tight control over the town, and it grew little in the early modern period. The manor passed from the Carre family to the Hervey family by the marriage of Isabella Carre to John Hervey, 1st Earl of Bristol, in 1688. The town's common land and fields were legally enclosed by 1794, giving ownership mostly to the Hervey family; this coincided with the Slea's canalisation; the Sleaford Navigation brought economic growth until it was superseded by the railways in the mid-1850s. In the 20th century, the sale of farmland around Sleaford by Bristol Estates led to the development of large housing estates. The subsequent availability of affordable housing combined with the town's educational facilities and low crime rates made it an attractive destination for home-buyers. As a result, the town's population underwent the fastest growth of any town in the county in the 1990s.
Sleaford was primarily an agricultural town until the 20th century, supporting a cattle market, with seed companies, such as Hubbard and Phillips, and Sharpes International Seeds, being established in the late 19th century. The arrival of the railway made the town favourable for malting. Industry has declined, and in 2011 the most common occupations are in wholesale and retail trade, health and social care, public administration and defence and manufacturing. Regeneration of the town centre has led to the redevelopment of the old industrial areas, including the construction of the National Centre for Craft & Design on an old wharf.