UNIVERSITY OF ZIMBABWE
CREDIT POLICY AND STARDARDS
Lecturer:Mr Samuel Gumbe
Student: Rutendo Brian Mawoyo
Question: With reference to your organisation or any that you are familiar with, outline the importance of a well articulated credit policy to the credit function.
Credit is deferred payment and its control is an important feature of business management. In banks clients deposit their money. The bank lends out the money through a credit function. Deposits are collected at say x% and advanced at say x% plus 5% and 5% being the profit of advancing credit. ...view middle of the document...
The sales function is looking to grow the business through cash sales and credit sales. Credit sales generally constitute the bulky of the sales in shops like Truworths, Edgars etc. For credit sales to be concluded the credit function has to authourise. And in such big organisations these two are completely different departments. Credit department/function regulates sales department by denying undeserving customers credit and also by credit holding on some. This provides fertile ground for conflict. The credit policy will then come in handy in the areas under mission statement and goals. These are crafted in a manner which results in achieving goal congruence in the organisation. The two departments have to be well versed with these documents which mean that they both will be well aware that they are working towards the same goals and achievements at company level. Sales will know that for there to be profitability bad debts need to be minimised and this is achieved by good credit management. In the end through this policy the two teams which could potentially be at logger head will be the best of friends and moral in the company is boosted. In the business processes even the despatch department will ensure that credit has signed off somewhere before goods are despatched against invoices if the procedures dictates that.
In the banking sector credit will mark limits and are interested in their utilisation. Treasury looks at the bank’s financial position authorises limited utilisation of these facilities on the grounds of liquidity. The aligning of the credit policy and treasury policy to the whole organisation’s policy will bring harmony among these teams.
Credit function reporting structure
The process of drafting the credit policy itself gives an opportunity for the executive and board of directors to adequately and objectively look at the contribution of credit sales or facilities to the bottom line of the business. This document will lead to the setting up of reporting structures commensurate to the contribution that the credit function is putting in the business. In the banking sector representation of the credit function extends to board level where a credit committee is established and has a day set aside to discuss credit issues regularly.
Improved recoveries and client discipline
In a well articulated credit policy steps to be followed before disbursing are eloquently enunciated. This leads to lodging and registration of security commensurate to debt issued. This then ensures that clients will use the funds for the purpose approved and proceeds are quickly used to discharge the debt. Where there is no fear of losing property clients can end up taking other risks outside the...