What are the steps of credit management?

credit management

One of the most important things about a credit management system is that it helps a company grow financially.

Credit Management is the fundamental element that defines the rules of operation at every stage of the sales process and enhances strategies made towards businesses.

Credit management not only saves a company from the expectancy of financial crunches but it also limits the internal conflicts that could potentially appear when the personal interests of people involved are different.

The whole policy of such a system clarifies different objectives of the company and promotes some of the best practices that could be implemented throughout the entire organization.

Importance of credit management solutions

Businesses rise and fall often. About half of the bankruptcies are because of poor credit management software, and thus, it?s very important.?

Credit management has always been quite more than just asking customers to complete their payments. It actually helps with a thorough examination of sorting out some of the most common reasons as to why payments aren?t pouring in and why customers are delaying in their payments.

An effective credit management system helps in a lot of ways, but most importantly,

  • It helps determine the credit rating of a customer in advance.
  • It helps in maintaining a good customer relationship.
  • A good credit management system improves the DSO and prevents any cases of bad debts.
  • It detects any of the late payments in advance and scans and monitors the customers for credit risks.
  • It also detects complaints in due time.

What are the steps of credit management?

A solid credit management plan consists of two key steps i.e.

  1. Determining the strategy?
  2. Specifying the right procedures

Let?s see what these are all about:

Step 1: Determining the strategy

This includes some of the most important questions towards retaining credit, like:

  1. What customers could be accepted under what circumstances?
  2. What customers have to be monitored?
  3. What customers can’t be accepted at all anymore? What’s the exit plan for them?

Step 2: Specifying the right procedures

This includes a more thorough approach since customers that exist for a company are dealt at this stage.

  1. What is the invoice like?
  2. How are the invoices being sent?
  3. What is the whole process comprised of?
  4. How could a reminder in writing be sent?
  5. What would a reminder look like?
  6. When could a debt collection agency be involved?
  7. At the failure of debt collection, when could the legal proceedings be started?
  8. What is the role of your employees in such a case?
  9. What strategy will you choose? Outsourcing or in-house management?

Systems required for payments

Usually, companies work with all kinds of systems to limit the risks and update their data. Such systems could easily help you in setting up and designing your credit management.

Acceptance systems

These systems are based on the credit information and could help you determine if a new customer could be accepted or not.

The best part is that it could be a manual as well as an automated process.

Monitoring system

This system could check the entire portfolio of an existing customer or supplier at any time. It helps to figure out if a certain customer could be accepted or not and is actually way more effective than most of the other systems.

Bookkeeping system

A bookkeeping system has a record of all the payables and receivables. It is one of the most traditional methods of record keeping. However, pulling out information could take time.

Invoice System

Invoices have been a part of all businesses for a long time. They could be sent manually or even automatically. They act as a reminder and yes, these reminders need to be logically aligned.

CRM System

Customer Relationship Management or CRM systems list out all the information pertaining to the agreements, contracts, and contacts of the customers. The complaints could also be processed in this system and they serve a far better insight into the backgrounds of non-payers.


A credit management policy always includes the steps that I mentioned above.

These steps revolve around how they could be implemented and who could implement them.

It should however always be operational and adapted to every company. Know this – there shouldn?t be two identical procedures as every business is unique and requires a separate strategy.