How to create an efficient credit policy to avoid default?

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Credit policy is an essential tool for companies that want to grant credit safely and avoid default. It must include well-defined criteria, rigorous data analysis and preventive practices that ensure the financial health of the business.

Many businesses have difficulty creating this policy. To learn more about the subject, continue reading and check out:

what is a business credit policy and why is it important;
what are the main elements of an efficient credit policy and how they are articulated;
how to define clear criteria for granting credit;
how to monitor and adjust credit policy continuously.
What is a business credit policy and why is it important?
Credit policy is the set of rules for determining when to offer credit to a customer. Based on these rules and the analysis of information from the public, it is possible to define when to grant this benefit.

The main objective of these rules is to prevent the provision of tunisia phone number list to customers with a high risk of default . If the risk is too high, the request may be denied.

These policies may also include measures on what to do in cases of default, how to rectify the credit situation, which cases are negotiable and which are not.

What are the main elements of an efficient credit policy and how do they fit together?
For your credit policy to be effective and reduce the risk of default in your company, it must contain some basic elements. Here are the main ones:

Limits and deadlines
Before considering any other element, you must have clearly defined deadlines for payments related to the customer's credit. Otherwise, you will have no basis for charging or stipulating other measures.

At the same time, there should be a limit on the amount of credit, interest that can be accrued, among other factors, to minimize its negative effects. All of these terms should be made clear to the customer so that all parties can be held equally responsible.

Credit assessment
Your company also needs to have a well-defined procedure for assessing the credit to be offered to the customer. Before granting the benefit, it is necessary to know what its possible impacts are for the company, especially considering the possibility of default .

Payment monitoring
Finally, your company must monitor each customer’s credit status to identify cases of default. Without an adequate monitoring plan, some of these cases may not be resolved, harming your business’ cash flow .

To correctly track all cases of default, it is important to invest in tools to track these cases. For example, a CRM system.

How to define clear criteria for granting credit?
Considering the above points, what is needed to develop an effective credit policy? Here are some criteria that can be used:

Customer credit analysis
A good place to start when developing your policies is to perform a credit analysis on your client. This will help you determine whether they are capable of fulfilling their obligations or whether the risk of default is too high.

To do this, it is necessary to evaluate criteria such as outstanding debt requirements, budget, financial stability, among others. From this, it is possible to identify those that present a very high risk to your business.

Payment history
If you already have one or more customers in your base who are looking for credit, another useful criterion is their payment history . In other words, you analyze whether the customer in question usually delays payments, has defaulted in the past or is a good creditor.

In general, this is one of the most effective methods in your credit policy, as the information is clearer. Customers with healthy financial habits tend to make their payments on time.

Budget planning
Your business's financial and budgetary planning should also be taken into account in your credit policy. After all, you cannot offer this benefit if it compromises your cash flow. Rest assured that, regardless of the risk, your business will not be in the red at the end of this transaction.

How to monitor and adjust credit policy continuously?
To protect your company from default , it is essential not only to draw up a credit policy, but also to adjust it over time. Depending on the market situation, you may have to set stricter deadlines or further reduce the risk.

These adjustments depend mainly on the market and changes in your customer base. It is also important to have a good partnership to make the process more efficient.

With Global's help, you can count on specialized assistance to develop your credit policy. With our management tools and industry experience, it is easier to avoid an increase in default cases.