A BRIEF INTRODUCTION TO THE CREDIT POLICY

Although it may seem the opposite at first, our market position when preparing a Credit Policy for a company that operates in the retail sector is not quite different from that one of a large multinational when it comes to optimizing our Working Capital.

Despite the current circumstances, in the last twenty years the credit rating agencies have adopted an increasingly practical strategy (or rather, aggressive) when it comes to attracting clients who, in this specific case, are each one of us, or, put another way, consumers.

Now more than ever we consumers are aware of our rights (however, we have not yet reached that level of awareness with our obligations). That is why it is of vital importance that, when deciding to grant credit to a consumer, this process is conducted in a responsible manner, communicating in a simple, clear, and precise way, the implications, rights, and obligations of the subject to whom the credit is granted.

It is especially important when implementing a Credit Policy that all the departments involved in the “Order to Cash” process know both the different Credit options that we are willing to grant, and the different (sub) procedures involved in it. This includes, in addition to finance, the following departments:

• Commercial/Sales/Marketing.
• Customer Service/Customer Service/Customer Care.
• Logistics/Supply Chain/Facilities. It is surprising to see how most organizations leave this department out of this process despite being, in most cases, the main point of contact with the client/consumer.

Although it may seem obvious at first, we want to highlight the fact that all those procedures included in our Credit Policy must be duly detailed in writing, and the distinct roles and responsibilities of all those involved in the process must also be defined.

Basically, the Credit Policy should cover the following points:

• What type of credit do we grant and for what purpose?
• The Credit Application Form and the Approval Matrix. In other words: How the credit is requested and who is authorized to grant, renew, or revoke it.
• Process of delivery/blocking of goods and/or services (Order Release)
• Unpaid claim process in friendly phase (Dunning)
• Customer collection posting process (Cash Application)
• Claim process for unpaid debts by legal means (Collection Agency/Legal).
• Accounting provisions for doubtful collection/uncollectible (Bad Debt/Write Off).