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title: "Introduction to Customer Credit"
canonical: "https://kb.myframeworks.com.au/space/FRAM/28384756/Introduction%20to%20Customer%20Credit"
format: markdown
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> ❌ A user must be a credit manager (system user flag) to make changes to a customer's account status and credit limit.

# <span style="color: #003366">What is Credit? </span>

Credit is the <span style="color: #222222">ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future. </span>

Companies extending credit terms often have more money tied up in Accounts Receivable than any other asset. Next to cash on hand, A/R is the most liquid asset available, being but one step removed from money in the bank, yet the credit and collection function responsible for creating and managing Accounts Receivable may be the most misunderstood, under-utilised and under-valued area of a business.

# Learn more about the Customer Credit

Select an option below for more information

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#  <span style="color: #003366">Why Offer Credit?</span>

- [ ] There are customers who require suppliers to provide their product/s, and to then allow them to confirm receipt of goods and to process the bill for payment.
- [ ] There are customers who must sell to their own customers and collect payment prior to paying their own creditors.
- [ ] There are competitors who offer credit terms.<span style="color: #333333"> </span>

# <span style="color: #003366">What are the Major Components Involved with the Credit Function of a Business? </span>

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> - Credit approval with the goal of maximising sales and minimising risks.
> - Billing that is timely, accurate, complete and understandable with a goal of facilitating payment.
> - Collections with the goal of completing the sale.
> - Internal communication - performance measures and reporting that bolsters the sales support mission statement with the goals of keeping customers current and the early identification and control of potential losses.

# <span style="color: #003366">What are the Costs and Risks involved with Offering Credit? </span>

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> - There is the cost of gathering information on new customers, obtaining reports and ratings and in evaluating the customer and the sale.
> - When approved, there is the cost of setting up the account, billing and receipting to the account.
> - If a company borrows on the strength of its A/R, there is the additional cost of servicing the debt.
> - Should the customer not pay when due, there is the cost of collections and possibly writing off the debt.

# <span style="color: #003366">What are the Benefits of the Credit-Control Functions of a Business? </span>

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> - Expanded customer base.
> - More sales.
> - More creative use of cash flow.
> - Better customer service.
> - Speedier turnaround of A/R.
> - The control of bad debt losses.
> - Improved efficiency.

# <span style="color: #003366">What are the Roles of the Credit Manager? </span>

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> - How to determine what is a legitimate credit $ and age limit.
> - How to use settlement discount as a marketing tool and a collection tool.
> - How to manage the credit-control of orders and invoices.
> - How to audit and troubleshoot the monthly trial balance.
> - How to use Frameworks to bring a delinquent debtor under control.
> - How to quickly bring money in, in a cash flow crisis.
> - How to report on collection effectiveness (KPI’s).

  
This Training Manual covers all of the given functions under the following topics:

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> - The establishment and maintenance of credit terms.
> - The collection of debtors accounts.
> - Internal controls.
> - Performance measurements and reports.
> - Enquiries.