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...cash flow. An otherwise profitable enterprise can fail if it runs out of readily available funds with which to meet its commitments and failure to control credit is a frequent cause of this situation. The supplier's funds are being used to finance customers' or clients' businesses rather than the business of the supplier. The granting of excessive credit, whether in terms of amount or of duration, can also have an impact on profit, even if funds are readily available.

Definition

Allowing customers and clients to defer payment for goods and services is a common and often necessary practice. Credit control is the totality of the policies, procedures and practices which ensure that the total amount of credit extended and the period for which it is extended are consistent with the organisation's policy. These will include ensuring that credit is granted on a systematic basis; the costs of extending credit are adequately recovered; the customer or client continues to pay within the agreed terms; and the need for access to liquid funds is achieved.

Remember: "It's not sold until it's paid for!"

Benefits of credit control

Credit control:

* prevents bad debts

* plays a major part in the control of cash flow

* contributes to...

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More articles from Chartered Management Institute: Checklists: Managing Information and Finance
Reading a balance sheet.(Checklist 130), October 01, 2005
Implementing statistical process control.(Checklist 137), October 01, 2005
Open systems thinking.(Checklist 138), October 01, 2005
Getting the most from statistics.(Checklist 139), October 01, 2005

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