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Credit Management

Definition

Credit management is the process of managing a company's credit risk. It involves assessing the creditworthiness of customers, setting credit limits, and monitoring customer payments. Credit management also includes the collection of overdue payments and the management of bad debt.

Example

For example, a company may decide to offer credit to a customer. The credit manager will assess the customer's creditworthiness by looking at their credit history, financial statements, and other factors. The credit manager will then set a credit limit for the customer and monitor their payments. If the customer fails to make payments on time, the credit manager will take steps to collect the overdue payments. If the customer is unable to pay, the credit manager will manage the bad debt.

Why it Matters

Credit management is important for businesses of all sizes. It helps to protect a company's financial health by reducing the risk of bad debt. By assessing the creditworthiness of customers and setting credit limits, businesses can ensure that they are not overextending themselves. Credit management also helps businesses to collect overdue payments and manage bad debt, which can help to improve cash flow. Finally, credit management can help businesses to build relationships with customers by providing them with the credit they need to purchase goods and services.

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