Credit management entails a procedure where companies and financial institutions trade products or grant money to their clients on a credit basis. This means that the money will be owed back to the company in the future.
These services allow people to procure goods even if they do not have funds to facilitate that purchase immediately. For example, people who buy cars on loan. They are allowed to take the vehicle and pay the money in installments. According to Cole and Mishler credit is, “Credit is a medium of exchange with limited acceptance.
After some time, the value initially received by the buyer is returned to the seller in the form of payments.” Collections management is a part of credit management. Credit has become an increasingly essential part of everyone’s lives. Purchases that seemed impossible earlier can now be made with a few clicks.
The nation’s economy is boosted by credit. So companies take careful steps to assure the person’s ability to pay back. If they are lousy, the economy will suffer. So people also conduct collection management assessments.
HOW IS CREDIT ANALYSIS CONDUCTED IN CREDIT MANAGEMENT?
Credit analysis helps the lender assess the borrower’s capacity to pay the loan back on time. In addition, the lender ascertains whether the borrower has money to be paid back in the future. This allows them to grant the loan seamlessly. Other factors involved in this process include:
- Checking the company/ individual’s account
The first step in conducting the credit analysis is examining the company/ individual’s account. If the balance is significantly low, the lender may refuse to lend the money because it is not prudent in the long run. The borrower may not keep their end of the bargain, thus causing the lender to fall into losses. A wise company will conduct thorough checks to steer clear of frauds and ensure the borrower’s credibility.
- Assessing the board of directors
This does not apply to individuals but to more prominent companies with a board of directors. They are the owners and stakeholders of the company. The lender’s job is to verify whether these members are committed to sticking around and their reputation.
People involved with nefarious activities must not be a part of your agreement. Being associated with them might tarnish your company’s reputation as well. Hence, rightly judging someone’s character is essentially imperative. One cannot afford to get caught up in a scandal.
- Take a look at the management as well.
A team of several members oversees the management of a company. They ensure the company’s smooth functioning. This is important because a company is a sum of its employees in the end.
If they work professionally towards the company’s goals, the loan will be easily paid. However, if they are callous and unprofessional, it is advisable to not engage with such a company. Enterprises with competent staff always manage to meet their obligations.
- Current political state
Politics also plays a crucial role because sometimes, an area under the attack of the borrower might be in a rift with some political party. It is important to ensure that no negative political ties are gravitating toward the borrower.
- Assess the market’s environment
The market comprises different companies engaged in the same work as you. The lender needs to see their interest rates, competition number, and techniques to help their betterment.
Credit Management is a financial process and so as per credit management analysis, collection management takes part.
Also Read: Financial Literacy Tips
© Ruchi Verma
Disclaimer: I write this post as an informational part, please read all guidelines carefully before investing in financial transactions.
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