lesson 3 Flashcards
is the process of deciding which customers to extend credit to and evaluating those
customers’ creditworthiness over time.
Credit management
5 steps in the credit management process
- You establish your credit policy
- Customers fill out a credit application
- You conduct research
- You approve or deny the request for credit
- You continuously monitor customers’ credit
is the complete guidelines and processes for executing this corporate credit strategy.
credit policy
assesses the effectiveness of a company’s policy and balances various interests
Credit risk analysis
Types of Credit Policy
- Loose credit
- Flexible credit
- Tight credit
- No credit
Components of a Credit Policy
- Credit application process
- Credit types, limits, and terms
- Collection
- Monitoring and control
- Risk management
greater willingness to extend credit to grow business
loose credit
willingness to extend credit depending on the circumstances
flexible credit
less willingness to extend credit to support revenue growth
tight credit
unwillingness to extend credit
no credit
assess the effectiveness of the credit policy over the entire gamut of credit decisions and the performance of the credit portfolio
monitoring and control
Includes tools and processes to support crafting the credit policy and mitigating portfolio risk.
risk management
Administers credit post-advance.
collection
Cover the types of credit, the amount available, and their repayment terms.
Credit types, limits, and terms
Describes the evaluation and approval of credit.
Credit application process
