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.
Wallingford (/ˈwɒlɪŋfərd/) is a historic market town and civil parish on the River Thames in Oxfordshire, England, 12 miles (19 km) north of Reading, 13 miles (21 km) south of Oxford and 11 miles (18 km) north west of Henley-on-Thames. Although belonging to the historic county of Berkshire, it is within the ceremonial county of Oxfordshire for administrative purposes (since 1974) as a result of the 1972 Local Government Act. The population was 11,600 at the 2011 census.
The town has played an important role in English history starting with the surrender of Stigand to William the Conqueror in 1066, which led to his taking the throne and the creation of Wallingford Castle. The castle and the town enjoyed royal status and flourished for much of the Middle Ages. The Treaty of Wallingford, which ended a civil war known as The Anarchy between King Stephen and Empress Matilda, was signed there. The town then entered a period of decline after the arrival of the Black Death and falling out of favour with the Tudor monarchs before being called on once again during the English Civil War. Wallingford held out as the last remaining Royalist stronghold in Berkshire before surrendering after a 16-week siege. Fearing that Wallingford Castle could be used in a future uprising, Oliver Cromwell ordered its destruction.
Since then Wallingford has become a market town and centre of local commerce. At the centre of the town is a market square with the war memorial and Wallingford Town Hall to the south, the Corn Exchange theatre to the east and numerous shops around the edges. Off the square there are alleyways and streets with more shops and a number of historic inns. Although it was a small town, Wallingford once had 14 churches; now, there are three ancient churches within the Parish of St Mary-le-More and St Leonard, a modern Roman Catholic church, a Quaker Meeting House dating from 1724 and Baptist, Methodist and community churches.