Good credit management's Impact: How does it contribute to material effectiveness and possibility in business

Abstract

Credit management is considered to be the most important action for any business which cannot be ignored by any financial enterprise. Credit management states the process of granting credit to the customers with the payment term which enables the conditions to pay the due on time with full payment. It is a material action plan of the company to safeguard against late payments problems or defaults from their customers. Good credit management encourages the business's financial stability with continuity of profitability in the business. With good credit management, receivables risks are minimized, and growth opportunities are increased for the business. A good credit management plan formulates continuous and proactive processes of identifying risks by evaluating the possibility for loss and deliberately safeguarding it against risks of extending credit. A good credit management plan helps in protecting the business’s cash flow by optimizing the performance and reducing the possibility of default will affect the business. Over more than half of the bankruptcies are attributed due to poor credit management. Even the profitable business turns into losses if their receivables are not managed properly. With improper or less working capital than required to settle the creditors and other expenses, businesses can quickly spiral into debts. In this article, we have discussed credit management and its importance for the business. With that, we have also discussed the importance of a good credit management process and its impact on the success of the business. We have also examined the effects of poor credit management process in the successful business which turns into debt in a short period. I have recommended certain material methods or plan to maintain the good credit management process in the business and avoid the situation downturn in the business.