Responsibilities of the Credit Manager
The person who gives the final approval for loan or credit is known as the credit manager. Investment in account receivable of any firm depends on how much it sells in credit and how long it takes for the collection of receivables. The credit managers give their final approval after making sure that the customer is able to pay back the loan. The efficiency of receivable management is judged against its capacity to expand sales and profitability with a reasonable investment in receivables.
Credit Manager responsibilities include:
- Researching and evaluating clients’ creditworthiness
- Creating credit scoring models to predict risks
- Approving or rejecting loan requests, based on credibility and potential revenues and losses
The credit manager is expected to play a significant role for this purpose. The roles of credit manager in receivable management are as follows:
- Setting Up Credit Standard And Terms
The credit manager has to set up credit standards to grant the credit. The credit manager has to devise new methods for doing background checks along with the usual ones. Credit standard refers to the minimum criteria for the extension of credit to customers. The credit standards set by the credit manager may vary from firm to firm. It may be loose or tight as per the condition of the firm. The credit manager should set such a standard, which minimizes the bad debt expenses and increases a firm’s profitability. The credit terms include credit period, discount, if any, for early payment and discount period. The length of the credit period has a significant impact on the cost of investment in accounts receivables.
- Credit Analysis And Evaluation
Another important role to be played by the credit manager is to analyze and evaluate very carefully the credit proposals. Not all loans come for the manager’s approval though; the clerks of the department handle the small ones while the bigger loans come directly to the manager. Any credit proposal involves some sort of risk and profitability. If not analyzed well, a good customer may be misclassified as a poor credit risk customer and a bad customer as a good credit risk customer.
- Credit Granting Decision
Once creditworthiness of a customer is analyzed and evaluated on the basis of available information, the credit manager should decide upon whether to grant credit or not. This depends on the result obtained from credit evaluation. Credit granting decision involves a certain degree of risk. When credit is granted the credit manager either receives the payment in some future date or does not receive at all. If customers pay, the firm is benefited by the amount equal to the difference between sales revenue and cost. Considering these profitabilities, the credit manager makes a credit-granting decision.
- Controlling Account Receivables
Once credit is granted to customers, the role of credit manager becomes more important and challenging because the risk of default and cost of investment in account receivables begins with credit granting decision. Each person who has a credit card or a bank account has a credit history, which can be accessed through his or her social security number. Monitoring and controlling of account receivables involve different techniques, such as preparation of aging schedule, collection matrix and schedule of day’s sales outstanding. The credit manager, on the basis of these techniques, should look at the receivable positions and compare it with the past position.