- Home
- Bankruptcy and Bankruptcy Code
- Business Entities
- Departmental Operations
- Credit Practices
- Legal
- Risk Analysis
- Understanding Accounts Receivable Costs
- Accounts Receivable Forecasting
- Informing Customers of their Credit Limits
- Authorization for Bank to Release Credit Information
- Authorizing Release of Credit Information
- Bank Loans and Bank Credit
- Expediting Bank Reference Requests
- Understanding Banking Relationships
- Bounced Checks; Collecting on Bounced Checks, NSF Checks
- Business Credit; Trade Credit; Open Account Credit Terms
- The Five Cs of Credit Analysis
- Check Acceptance
- Check Kiting
- Classification of Risk; Customer Risk Score
- COD Terms; Slow Pay; High Risk; Risk Mitigation;
- Code of Ethics
- Confidentiality Agreement
- Consumer Credit Granting
- Commercial Credit Application; Necessary Components
- Credit Approval Process
- Credit Associations
- Credit Decision-Making
- Offering Open Account Terms; Credit Extension
- Customer Credit File; Credit File
- Credit Granting Authority
- Credit History and Strategy
- Credit Insurance; Trade Credit Insurance; Export Credit Insurance
- Credit Line or Credit Limit
- Credit Policy Checklist
- Credit References
- Credit Reporting Agencies
- Credit Risk Environment
- Credit Risk Management
- Credit Role/Strategy
- Credit Decision Making: Is it Art or Science?
- Customer Purchase Orders, Errors on POs and their Impact on Collections
- Customer Retention
- Grace Periods and Cash Discounts
- Direct and Indirect Credit Investigations
- Unearned Discounts; Unearned Cash Discounts; Cash Discounts
- Enterprise Resource Planning
- Ethics for the Credit Manager
- Evaluating Financial Health
- Exchange of Credit Information
- Extended Dating Terms
- Credit File Documentation
- Fraud Signs and Prevention
- History of Credit
- Cargo Insurance
- Insurance Brokers and Credit Insurance
- Internet as a Source of Credit Information
- Late Charges
- Minimum First Order Without Credit Investigation
- New Account Checklist
- Non-Disclosure Agreement
- Open Account Sales; Open Account Terms; Extension of Credit on Open Account Terms
- Order Approval; Order Hold; Credit Reviews; Pending Order Review
- Order Controls / Order Approval
- Pro Forma Invoices
- Requesting Financial Information from Customers
- Restrictive Endorsements
- Returned Checks
- Return Merchandise Authorizations
- Root Cause Analysis of Past Due Balances
- Safeguarding Accounts
- Security Agreements; Secured Debts
- Seller's Invoice
- Terms and Conditions
- Terms of Sale
- Terms of Sale: Examples
- Types of Credit: Consumer Credit; Bank Credit; Commercial Credit; B2B; Business to Business
- Written Credit Policy Manual
- Handling Post Audit Claims More Effectively; Post Audit Claims
- Do's and Don'ts of Business to Business Debt Collection, Debt Collection Practices
- Bad Debt Reserves
- Advantages and Disadvantages of Purchasing Credit Insurance
- A Letter of Introduction
- Addressing Chronic Slow Pay Customers
- More about Cash Forecasting
- Streamlining Order Processing
- Collection Practices
- Financial Analysis
- Financing Methods
- International Credit
- Laws and Regulations
- Payment Methods
- Performance Measures
- Security Instruments
- Career Management, and Job Change
- Credit Website Tools
- Upcoming Educational Events
- Credit and Collections Tools and Tips
- Tips on Creating Better Emails
- Generating Effective Credit Correspondence
- Exporting
- Accounting
Written Credit Policy Manual
Before credit analysis can begin, it is essential for the creditor company to define its credit policies. The advantages of creating a formal, well-written credit policy manual include all of the following:
- The policy can be used as a training tool.
- It can be a reference guide for members of the credit department, and can be referenced in discussions with employees outside of the department such as salespeople.
- A credit policy will provide guidance about what is required to consider an applicant for credit terms. It will also explain how frequently the active account will be reviewe once it has been established.
- When credit policies are written and everyone is expected to follow them, when variances or deviations occur it is both necessary and appropriate to ask the employee that disregarded a formal, written policy to explain why he or she did so.
- Although not the primary purpose for a written credit policy, having a formal policy makes it must easier to discipline employees who violate established rules and procedures.
- Written policies help ensure consistency. Therefore, written poliicies reduce the chance of costly errors being made.
- A written policy helps during transitions when key employees leave. It ensures that the yet tools, techniques, ideas and practices do not leave when the employee leaves the position.
- A written policy will almost always describe how and when exceptions to policies can be made.
- A formal policy will describe credit granting authority, and explain who has the authority to make exceotions, approve credits or returns, or compromise with debtors.
- A written policy manual will decribe how specific tasks are to be performed, and why they are performed.
A company’s credit policy is influenced by a number of factors, including:
- The company’s strategic goals,
- Its market share goals,
- Its profit margin,
- The impact of any new product launches,
- The company’s overall competitive positions, and its current market share,
- Its bad debt reserves,
- The goals established for the credit department,
- The policies written for the credit department,
- Management’s sensitivity to credit risk and loss,
- The credit department’s goals.
© 2011. Michael C. Dennis. All Rights Reserved. Michael is the author of "Credit and Collection Handbook."