Credit gives the customer the opportunity to buy goods and services, and pay for them at a later date.

[edit] Advantages of credit trade

• Usually results in more customers than cash trade.
• Can charge more for goods to cover the risk of bad debt.
• Gain goodwill and loyalty of customers.
• People can buy goods and pay for them at a later date.
• Farmers can buy seeds and implements, and pay for them only after the harvest.
• Stimulates agricultural and industrial production and commerce.
• Can be used as a promotional tool.
• Increase the sales.

[edit] Disadvantages of credit trade

• Risk of bad debt.
• High administration expenses.
• People can buy more than they can afford.
• More working capital needed.
• Risk of Bankruptcy.

[edit] Forms of credit

• Suppliers credit:
  • Credit on ordinary open account
  • Instalment sales
  • Bills of exchange
  • Credit cards
• Contractor's credit
• Factoring of debtors

[edit] Factors which influence credit conditions

• Nature of the business's activities
• Financial position
• Product durability
• Length of production process
• Competition and competitors' credit conditions
• Country's economic position
• Conditions at financial institutions
• Discount for early payment
• Debtor's type of business and financial position

[edit] Credit collection

[edit] Overdue accounts

• Cards arranged alphabetically in card index system
• Attach a notice of overdue account to statement.
• Send a letter asking for settlement of debt.
• Send a second or third letter if first is ineffectual.
• Threaten legal action.

[edit] Effective credit control

• Increases sales
• Reduces bad debts
• Increases profits
• Builds customer loyalty

[edit] Sources of information on creditworthiness

• Business references
• Bank references
• Credit agencies
• Chambers of commerce
• Employers
• Credit application forms

[edit] Duties of the credit department

• Legal action
• Taking necessary steps to ensure settlement of account
• Knowing the credit policy and procedures for credit control
• Setting credit limits
• Ensuring that statements of account are sent out
• Ensuring that thorough checks are carried out on credit customers
• Keeping records of all amounts owing
• Ensuring that debts are settled promptly
• Timely reporting to the upper level of management for better management.