Credit control
Credit occurs when the company grants its client to use its services or products before he compensates the company for this usage.
Elements of the credit control process
- Company strategy.
- Client credit worithness.
- Credit control function.
Overall company strategy/business plan determines the company intent regarding the credit policy, it might use a tight credit control policy or it might go for loss one. However, the clients' segmentation mechanism will affect the credit department functionality in the company.
Credit occurs when the company grants its client to use its services or products before he compensates the company for this usage.
Elements of the credit control process
- Company strategy.
- Client credit worithness.
- Credit control function.
Overall company strategy/business plan determines the company intent regarding the credit policy, it might use a tight credit control policy or it might go for loss one. However, the clients' segmentation mechanism will affect the credit department functionality in the company.
Customer credit worthiness included many activities which depended on the size of the credit and the company services/product.
Function of the credit control
Following is an example of the credit control in the telecom industry
Telecom Credit Control Process main functions:-
A. Credit policy
B. Monitoring
C. Action
D. Credit control system
Credit policy
1. Credit control policy should be documented and approved by the senior management;
2. Credit control policy should include the concept of classifying the customers into sub segments or categories such as (Individual, Corporate, usage, method of payment, VIP, etc); and the justification behind such classification.
3. Monitoring concept should be determined in the policy:
- Whether it is based on prescribed credit limit or based upon the usage;
- Virtual credit limit (changed based on a certain criteria),
- If there is no credit limit is used, another concept should be applaied for example, the limit or risk of the customer is based on his usage behavior and payments history)
4. Action techniques that are used to monitor the credit policy should be documented, and it should include the disconnection process, timeframe of executions for the disconnection, type of disconnection, and whether it is e manual or automated.
5. Reconnection process. (threshold to reconnect the line).
6. Authority to override the credit control policy.
7. Credit control system business rules should be in line with the credit policy
Risks in the credit control policy
1. No credit control policy and procedures.
2. Credit control policy is not inline with over all company strategy (tight credit control policy or wide credit control policy)
3. No proper segregation of credit control function in the company (management conflict)
4. No credit limit or any concept to monitor customer. Or inaccurate/proper credit limit/concept.
5. Customer life value are not considered in the credit control mechanism
6. Customer are being monitored manually
7. Authority for credit policy override is not determined.
8. Customer exceeded their predetermined credit limit/concept without being disconnected.
9. No proper customer classification into segment, and no justification for current segmentation.
10. System business rule are not inline with credit policy. The following general control should be applied which included:
- User access right to the system;
- Segregation of duties;
- Business rule update mechanism
11. Management reporting in the credit is not comprehensive.
Function of the credit control
Following is an example of the credit control in the telecom industry
Telecom Credit Control Process main functions:-
A. Credit policy
B. Monitoring
C. Action
D. Credit control system
Credit policy
1. Credit control policy should be documented and approved by the senior management;
2. Credit control policy should include the concept of classifying the customers into sub segments or categories such as (Individual, Corporate, usage, method of payment, VIP, etc); and the justification behind such classification.
3. Monitoring concept should be determined in the policy:
- Whether it is based on prescribed credit limit or based upon the usage;
- Virtual credit limit (changed based on a certain criteria),
- If there is no credit limit is used, another concept should be applaied for example, the limit or risk of the customer is based on his usage behavior and payments history)
4. Action techniques that are used to monitor the credit policy should be documented, and it should include the disconnection process, timeframe of executions for the disconnection, type of disconnection, and whether it is e manual or automated.
5. Reconnection process. (threshold to reconnect the line).
6. Authority to override the credit control policy.
7. Credit control system business rules should be in line with the credit policy
Risks in the credit control policy
1. No credit control policy and procedures.
2. Credit control policy is not inline with over all company strategy (tight credit control policy or wide credit control policy)
3. No proper segregation of credit control function in the company (management conflict)
4. No credit limit or any concept to monitor customer. Or inaccurate/proper credit limit/concept.
5. Customer life value are not considered in the credit control mechanism
6. Customer are being monitored manually
7. Authority for credit policy override is not determined.
8. Customer exceeded their predetermined credit limit/concept without being disconnected.
9. No proper customer classification into segment, and no justification for current segmentation.
10. System business rule are not inline with credit policy. The following general control should be applied which included:
- User access right to the system;
- Segregation of duties;
- Business rule update mechanism
11. Management reporting in the credit is not comprehensive.
