The document discusses various aspects of credit management and control, including: 1. Liquidity and external methods to improve liquidity such as credit insurance, factoring, and invoice discounting. 2. The credit control process and sources of information on customers both internally and externally. 3. Granting credit, setting up customer accounts, and factors to consider such as ownership, overseas customers, and sales policies. 4. Additional topics covered include discounts, credit insurance, legal considerations around contracts, remedies for breach of contract, and terminology.

1. Credit Management
and Control
CRMC
1

2. Introduction to Credit
Management
 Liquidity
 How easily can a person or an
organisation raise cash to meet
immediate, or short term
liabilities.
2

3. External methods of
improving liquidity
 Credit insurance – against risk of non payment
 Factoring – money lent against invoices with
factoring company taking over the sales ledger
 Invoice discounting – money lent against
invoices but sales ledger remains in the
company’s control
3

4. The Credit Control
Process
 Look at the chart on page 5 of the
text book
4

5. Information on
Customers
 External
 Bank references
 Supplier (trade)references
 Credit circles – businesses in the same business
 Credit rating agencies – Dun & Bradstreet,
Experian, Equifax
 Accounts filed at Companies House
 Official publications
5

6. Information on
Customers
 Internal
 Conversations and emails
 Records of meetings, visits by employees of the
organisation
 The company should have a Credit Control
Policies and procedures document to hand
setting out clearly the criteria for assessing and
the granting of credit together with details on
how to chase up debts.
6

7. Activities
 This now finishes chapter 1 of the
text book.
 Can you please complete the
activities starting on page 17
7

8. Financial Analysis of
customer accounts
 This involves calculation of and use of the
following financial ratios:
 Profitability
 Liquidity
 Use of Resources
 Financial Position
 These have been studied earlier in the course and
will not be taught again.
 Work Through the case study on page 25 Firth
Electronics Credit Assessment Procedures
8

9. Credit Scoring
 Numerical values given to the performance
indicators calculated the total of which indicates
the level of credit risk.
 High score - LOW RISK
 Low score - HIGH RISK
 See page 28 for example of credit rating system
 Work through the case study on page 30
 Chapter 2 has now been completed
 Work through the activities from page 36
9

10. Grant Credit, Set Up
Customer Accounts
 As well as calculating the credit rating system for
a company the following factors may be taken
into consideration:
 Ownership of the company – BBC
 Overseas company – high risk?
 Insufficient information – new business
 Sales policy – tension between
sales staff and
credit control staff
10

11. Discounts
 High interest rates – discount is attractive
 Low interest rates – discount is less attractive
 Annual equivalent cost of offering a discount
 See formula on page 49 and worked example on
page 50
 Interest for late payment
 Retention of title
11

12. Credit Insurance - UK
 Specialist insurance companies will offer cover
for cash lost because of bad debt. Options
include
 Whole turnover insurance – around 90% coverage
 Key account – up to 40 customers with up to
100% coverage
 Single account insurance – 100% cover
12

13. Credit Insurance
Abroad
 Export Credit Insurance
 Available cover from private insurance
organisations for companies supplying goods
and services on credit to overseas companies.
 Coverage will include
 Credit risk
 Political risk
 This covers chapter 3 of the book
 Please complete the activities at the back of the
book
13

14. Legal Considerations
 Contract
 This is a legally binding agreement which is
enforceable by law
 Invitation to treat
 Essential characteristics of a contract are:
 Offer and Acceptance - are an agreement
 Intention to create legal relations
 Consideration – exchange something lo value
14

15. Breach of Contract
 Terms in a contract must be fulfilled as part of
the agreement. If not this is a breach of contract.
 Express terms – explicit, stated and binding on
all parties
 Conditions – fundamental terms if broken can
sue for damages
 Warranties – minor terms if broken can lead to
action for damages, the contract remains in force
 Implied terms – implied by custom or law but not
stated in contract i.e. Satisfactory quality
15

16. More Terminology
 Void Contract – cannot be enforced by law i.e.
Carry out an illegal act
 Voidable Contract – a valid contract that can be
broken i.e. Adult and a minor
 Unenforceable contract – a valid contract but if
one party withdraws the law will not enforce them
to meet the requirements.
16

17. Remedies for Breach of
Contract
 Action for damages – loss suffered by the breach
 Action for price – to recover the amount of the
bad debt
 Specific performance – force the other party to
complete the contract
 Retention of title – retain ownership of the goods
17