Credit management refers to a number of financial transactions and developments that take place in the credit market. It encompasses a wide range of activities that involve credit-related institutions such as banks, credit unions, mortgage companies, consumer credit counseling agencies, consumer credit bureaus, government organizations, and nontraditional credit businesses. Credit management involves the assessment, collection, administration, and monitoring of credit portfolios. Credit management includes many processes and areas that include credit card processes (such as developing, consolidating, and refinancing credit card debt), credit card collections (such as managing collection accounts), and the preparation of credit profiles for consumers to apply for credit.
Credit management refers to the processing of credit card orders by a retailer, finance department, or an agency acting on behalf of a retailer. A credit manager supervises these transactions and ensures that they go through smoothly. A manager may be a direct employee of the company whose job it is to monitor credit-related transactions; he/she may be an indirect employee who reports directly to the management and provides reports on a periodic basis. Sometimes, the credit manager is an outside third party hired to perform specialized tasks for a retailer. In other cases, a credit management service company or corporation performs some or all of these tasks.
In order for credit management to be effective, a company must establish its goals and objectives. Goals and objectives determine how credit management will be performed, what resources will be used, the frequency of credit management activities, and who will perform credit management services. Goals and objectives should include objectives for credit card processing, collection of receivables, servicing of customer credit control systems, preparation of credit profiles for credit card application, and the monitoring of account balances. They should also include the cost effectiveness of credit management activities and methods. Many organizations have specific requirements regarding fees, customer credit control systems, or reports that they need in order to maintain their accounts.
In order to achieve effective credit management, there are three main functions performed by a credit manager: loan and contract approval, debt collection, and delinquency assessment. Many companies have policies prohibiting the unauthorized use of a credit card or the failure to make loan and contract approval decisions. These policies may be legally enforceable. The company’s policy may also specify that if a transaction cannot be approved based on delinquent status, a written explanation must be provided to the customer within a certain period of time explaining the reasons for the non-approval. Many companies also have minimum lapsed deadlines for making delinquent status adjustments and/or collections.
Collection agencies, on the other hand, are often designed to collect a customer’s outstanding balance. A collection agency may be created to serve a single customer, in which case the credit management policy will specify who must be contacted in order to pursue collection efforts. Collection agencies are not subject to the same credit policy guidelines as a credit policy. Therefore, a new normal is being set forth where an agency is developed in order to take on new business and pursue current business.
A credit manager works closely with a collection agency in order to monitor the progress of these efforts and initiate changes where appropriate. The credit manager will work with all collection agencies in order to determine delinquent accounts receivable levels and establish priority procedures where necessary. It is common practice to assign an overall credit manager to handle each credit policy department. In addition, the collections manager may work under the supervision of a manager. All credit managers and collections supervisors must be consistent in their approach and follow the same credit management policies and guidelines.
An invoicing manager is responsible for ensuring that the client’s invoices are paid on time or before the due date. In order to implement an effective credit management system, the invoicing manager must first review the company’s current invoicing procedures and implement any changes where applicable. Next, the invoicing manager will work closely with the customer credit management department in order to develop and approve new payment procedures and follow up strategies. These plans will then be implemented by the entire credit management team in conjunction with the collection departments.
As previously stated, the primary goal of credit management is to ensure collections are paid on time and to reduce the number of credit payments that default. Due to the high level of collection activity associated with collecting outstanding invoices, the credit management team has developed a range of tools and processes designed to increase cash flow while reducing the number of defaulted accounts. A good credit management system will require accurate collection and payment balancing practices. This requires the use of advanced bill grouping and analysis software, as well as a robust billing and payment processing system.