Angelie E.

Resurreccion
BSBA-FM-4

Learning Insight

In chapter 6, Ive learned about the credit policies which is in business policies are
general statements used as guides for the members of an organization as they perform
their jobs. Policies provide guidelines on routine and repetitious tasks. Policies are
designed or set at various levels: strategic policies at the top management level, tactical
policies at the middle management level and operational policies for the rank-and-file.
As you create your policy, consider the link between credit and sales. Easy credit
terms can be an excellent way to boost sales, but they can also increase losses if
customers default.
Some of the areas where general policies have to be designed are: (1) Approval
Authority (2) Credit Limits (3) Loan-to-Market Value ratios (4) Past due Limits (5)
Territorial limits (6) Single proprietor vs. Corporation (7) Other side agreements imposed
by lender (8) Separation of credit from marketing operations.
Though most consumers expect to pay cash or use a credit card when making a
purchase, commercial customers typically want to be billed for any products and services
they buy. You need to decide how much credit you're willing to extend them and under
what circumstances. There's no one-size-fits-all credit policy--your policy will be based
on your particular business and cash-flow circumstances, industry standards, current
economic conditions, and the degree of risk involved.
For assistance, ask your particular industry's trade or professional association for
guidelines. Part of your research should include finding out what your competitors' terms
are and taking them into consideration when determining your own requirements.
An often-overlooked element in setting a credit policy is the design of invoices and
statements. The invoice is the document that describes what the customer is being billed
for; the statement is the follow-up document that indicates the status of the account. One
collection and creditor rights expert says that invoices and statements that are clear, easy
to read, and allow the customer to quickly identify what is being billed are likely to be
paid faster.
Collection policies and procedures, collection policy goals can take a liberal or
conservative approach to collections, allowing that to define their collections procedures.
A business that takes a more liberal approach will be more flexible and willing to work
with a delinquent account while a more conservative approach will require strict
adherence to credit guidelines.
Collections procedures can not only outline steps to collecting on delinquent accounts
but also include steps to preventing accounts from becoming delinquent. Providing new
credit customers with terms of sale and payment information and including this
information on credit receipts and statements can serve to remind customers of their
credit obligation. In-house collections procedures should include a schedule for
contacting customer with past due accounts. A business can, for example, send a past-due
notice and start making weekly collection calls when a payment becomes seven days late.
If payment is not received, calls can become more frequent. If the customer is still past
due at the end of 30 to 90 days, the business can then refer the account to a third-party
collection agency or consider taking legal action.