CreditManagement

CreditManagement refers to the process of granting credit while managing the risk of nonpayment. The term is often written as 'credit management'. It covers the development of credit policies, evaluating customers, setting credit limits and terms, monitoring accounts receivable, and pursuing collections. It is used by lenders, suppliers, and other organizations that extend credit to customers.

Key components include a formal credit policy, risk assessment methods, credit approval workflows, terms and conditions, invoicing and dispute handling, collections, and write-off procedures. Successful programs align with sales objectives while maintaining liquidity and protecting against bad debts.

Core processes involve customer onboarding, data gathering (financial statements, credit bureau data, payment history), credit scoring or rating, approval or denial of credit, setting limits, periodic reviews, monitoring of aging receivables, and escalation for delinquent accounts.

Performance is tracked with metrics such as days sales outstanding (DSO), aging analysis, bad debt ratio, collection rate, and credit utilization. Technology platforms, including ERP and dedicated credit management software, automate credit checks, limit management, invoicing, and collections workflows.

Governance and compliance include maintaining data privacy, fair lending considerations, regulatory reporting where applicable, and ethical debt collection practices. Global practices vary by jurisdiction and industry.

Why it matters: effective CreditManagement supports cash flow, reduces financial risk, enables growth, and improves customer relationships by offering appropriate credit terms and reliable service.