Credit management is consider similar to sales and financing, however traditionally it’s actually governed by the finance department because of the relationship with sales ledgers and the need for unbiased and sound credit decision to be made. Still there are several movements that can bring the links closer to sales.

In order to bring about good credit management procedures to an organization the following issues must be addressed:

• The entire organization should be aware of the importance of credit debt management
• The company must adhere to specific task that needs to be accomplished in order to implement an efficient credit management program.
• There has to be a company agreement on credit policies and relevant procedures that all the employers are aware of this includes however not limited to, risk assessments, collection of cash and interdepartmental information sharing.
   

Generally there are at least 7 different key areas that should be addressed in order to improve the company’s cash flow and increase profits. Try using these credit management practices:

• Direct sales ledger - typically the receivable assets are the largest assets for the organization.
• Management of cash sources - you want to monitor all cash sources and explain all repayment schedules to include investments, bank loans and sales profits.
• Take advantage of working capital - in this case your working capital is operational gratuities after expenditures have been deducted. It’s important to make sure the expenditures do not exceed the working capital; otherwise you can expect financial problems in the future.
• Use profits wisely – The longer you have outstanding balances the interest will take from the profits. Having your money flow in faster can reduce the amount of interest and therefore show a higher profit. This also means evaluating the how quickly your customer pays and how to reduce the impact of too many bad accounts. Any debt that works against your profit is bad debt and the only way to regain loss profits is by increasing your sales production, which sometimes can be quite difficult. Example for a bad debt at 10% profit of 100 pounds would require sales increase of 1,000 pounds to make up for the loss. Remember a number of business lose more money from daily overdue account than from bad debt accounts.

Another factor to consider with credit debt management is how many bad debts does your business have and how are these debts affecting the overall profit levels. One thing to remember is to ensure policies and procedures are flexible enough to be adjusted in different economical situations and business climate changes.

Basically if you want to maximize your profits making sure to map out the roles and duties of your companies credit management program is essential. The only way to ensure this process is successful is by making sure everyone fully understands.