Week 2 Flashcards
What is Credit Policy?
It defines how your company will extend credit to customers and collect delinquent payments.
What is Lenient Credit Policy?
This is liberal to the maximum. In the case of a lenient credit policy, the firm offers maximum credit and/or credit to almost all buyers without judging their financial capabilities.
What is a Stringent Credit Policy?
It offers credit to only a select group of buyers whose credit history is known to the seller.
What is Credit Management?
In managing your personal finances, your primary credit management objective should be to avoid excessive debt.
What is the excellent credit score range?
800 to 850
What is the good credit score range?
670 to 739
What is the poor credit score range?
300 to 579
What is a Credit Report?
It consists of the raw data that serves as a basis for your credit score. It is a historical record of how you manage your finances, like a report card.
What is a Credit Score?
A number that depicts your creditworthiness and it is based on metrics derived from your consumer credit history
What is a Credit Limit?
This is the maximum amount of credit that you are willing to extend to a customer, while credit terms are the conditions and deadlines for payment.
What is the Credit Term?
These are the conditions and deadlines for payment, such as net 30, 2/10 net 30, or COD.
What are the 5 important items to clarify your credit policy?
- Credit Limits
- Payment terms
- Accepted payment methods
- Customer data needed
- Bad debt policy
What are the 4 factors to consider before writing the credit policy?
- The current economic climate
- Your cash and working capital position
- The size of your customers and their financial position.
- Your customers’ business sector
What are the 5 steps to write the credit policy?
- Outline your goals
- Define roles and responsibilities
- Define credit evaluation criteria
- Define your terms of sale
- Define your collection processes
Why do we need to document the credit policy?
- Avoids miscommunication of payment terms, improving business relationships.
- Ensures consistency in the credit management process, eliminating ambiguity.
- Saves time and money by eliminating the need for undocumented processes.
What is the Credit Evaluation?
This is the process of assessing an applicant’s ability and willingness to repay a loan or other forms of credit.
What is the Credit Analysis?
This is the process of evaluating a borrower’s creditworthiness using financial ratios and fundamental diligence.
