What is a Credit Management Agency and Its Importance

A struggle that countless businesses are faced with would be the management of their credit. Many think that their operations are too busy for the business itself to manage their credit. However, it should be remembered at all times that credit management can have a drastic influence on any business’s performance as a whole. Thus, credit management should be seen as a part of the business.

This is not to say that credit management is a simple task to keep up with, which is why many businesses outsource this task to a credit management agency. Such agencies attend to anything that relates to the process of approving clients for the following:

  • Onboarding
  • Extending terms of payment
  • Setting credit and payments policy
  • Issuing credit or financing
  • Monitoring business cash flow

This is a service that is practised and used by countless businesses and banks across all markets and industries. Businesses that find themselves working within the Business-to-Business (B2B) sphere will often grant credit while also needing to manage payment cycles that may be on the slow side. As a result, this will affect their cash flow.

However, at its foundation, credit management refers to the caretaking of a company’s financial well-being. A reliable credit management agency can make the difference between the survival of the company, where they can either be seen thriving or going bankrupt.

A credit management agency breaks its service offerings up into 4 core components, namely the assessing and approving of new clients, setting payment terms, extending credit to existing customers, as well as tracking customer credit.

Assessing and Approving New Clients

With a reliable credit management agency, a customer’s financial situation can be assessed with speed and efficiency, the balancing of which is never easy. If this assessment process takes too long, the risk of a potential customer finding a new supplier becomes imminent. If this is done poorly, your business may experience the risk of taking on bad debt.

Setting Payment Terms

This refers to the practice of choosing when invoices should be paid off. Companies will often need to achieve a balance between offering terms that are suitable for the industry in question, and the issues and risks revolving around cash flow that can be brought on by longer terms.

Extending Credit to Existing Customers

This covers several situations, namely the issuing of credit notes and providing your clients with financing options. This is often a necessity when you are looking to retain as many clients as possible. Through financing, this can attract additional benefits that include customer loyalty and increased sales volumes. Credit terms can differ in the history of payment or credit of certain clients.

Tracking Customer Credit

One of the more important functions that make up credit management would be the ability to look over and prioritise sales ledgers. This may, in turn, crossover into collections. This may involve establishing the status of late payments, otherwise known as dunning.

As you may now be able to tell, a credit management agency can help your business in a multitude of ways, so consider their services today!

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