Access creditworthiness

A firm should assess the creditworthness of All new customers immediately andExisting customers periodically

information comes from bank references , trade reference, competitors, published information, credit reference agencies, company sales records, crediting scoring.

Credit limits

It should be set to reflect both the amount of credit avaiable and length of time allowed before payment is due..

THe ledger acocunt should be monited to tak account of orders in the pipeline as well as invoiced sales, before further credit is given.

Invoice promptly and collect overdue debts

A credit period onlly begins once an invoice is received so prompt invoicing is essential. If debts go overduem the risk of default increases. therefore a system of follow up procedures is required.

Techniques for chasing overdue debts include the following:

-Reminder letter

-Teleohone call

-Withholding supply

-Debt collection agencies and trade association

-Legal action

Monitor the credit system

THe position of receivables should be regularly revired as part of managing overall working capital and corrective action taken when needed.

Methods include

-Age analysis

-Ratios

-Statistical data