Business – 5.1 Business finance – Working capital | e-Consult
5.1 Business finance – Working capital (1 questions)
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The purpose of a credit control policy is to minimise the risk of bad debts while maintaining good customer relationships and supporting sales growth. Key components include:
- Credit assessment criteria – methods for evaluating the creditworthiness of new and existing customers (e.g., credit scores, trade references).
- Credit limits – maximum amount of credit extended to each customer, based on risk assessment.
- Payment terms – standard terms (e.g., 30 days) and any variations for specific customers.
- Invoicing procedures – timely and accurate issuance of invoices, including clear payment instructions.
- Collection actions – steps to follow when payments are overdue (reminders, phone calls, formal letters, legal action).
- Monitoring and reporting – regular review of ageing analysis, days sales outstanding (DSO) and bad‑debt provisions.