European Credit Management Guide

from credit managers to credit managers

Chapter 1 - The Credit Policy

The granting of trade credit is a powerful selling aid, and is a fundamental foundation upon which all trading relationships are built. Both seller and buyer gain advantage from credit facilities, but the risk of slow or non payment is borne by the seller – risk in the form of non payment, and cost in the form of the interest expense incurred from the date of the sale to receipt of the funds.

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Chapter 2 - The Invoice

Whether it is for the supply of goods or for the provision of services (or indeed for both), the purpose of an invoice is twofold: it acts as an official record of that sale to the customer and in effect is most often also the very first request for payment made to that customer. Accuracy and promptness are vital on both counts. As a true record of the sale, the invoice must be correct in every aspect, and in order to ensure payment on due date, it should be issued without delay to the customer.

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Chapter 3 - Risk Assessment in Trade Credit

No credit manager ever takes anything at face value – it is part of his or her role to look behind the obvious, verify the facts and take informed decisions based upon careful analysis of the results. The impressive premises, complete with the fish tank in the reception area and the flagpoles in the car park, may hide a company with severe financial problems, weak cash flow and a reputation for failing to pay suppliers.

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Chapter 5 - Collections (by EuroCollectNet)

We bring you the booklet of the third collection of questionnaires from the members of EuroCollectNet describing the basic elements of debt recovery in their countries. This time EuroCollectNet has added also their partners from Australia and Brazil as an example of our worldwide connections.

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Chapter 6 - Customer Focus and Credit Management

Customer focus and credit management – just five words, four of them significant standing alone, but of paramount importance when taken together to make up the five. They should be taken together, because as important as they may be, each in its own right, not to recognise the value, significance and impact of the whole misses the point entirely.

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Chapter 7 - E-Invoicing

When it came to drafting this article, it was realized after the first few lines that a faithful facsimile of the excellent Billentis report was being created. Having asked permission of the author there is no apology made in providing the Billentis report for this chapter on Electronic Invoicing.

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Chapter 8 - Credit Sales Approval

Granting credit is a form investment. An investment in customers and sometimes, this investment turns to be pricey. Like any form of investment credit does not come for free. The firm selling on credit has to calculate the costs involved in credit, the opportunity cost of granting credit and also has to develop effective internal systems, processes and procedures by which credit is granted and managed efficiently, effectively and profitably.

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Chapter 9 - Managing Accounts Receivable

The primary objective of managing accounts receivable should be to sustain long-term customer relationship in order to encourage the existing customers to make repeat purchase orders. Thus, maintaining competitive advantage in the market, while keeping them paying regularly. Selling to existing customers helps to keep the cost of doing business low. However, very often, this entails extending credit to existing customers which may result to be expensive to the supplier, but compared to the cost

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Chapter 11 - Achieving Competitive Advantage in the Market

Today’s business environment is becoming hostile and more challenging. More products and services are becoming homogenous with little scope for differentiation and shorter life cycles, e-commerce and globalisation are making competition tougher and more challenging, customers are becoming more knowledgeable and less loyal and in many industries, supply is exceeding demand. Hence, it is becoming more critical to find ways by which a firm attracts more business.

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Chapter 13 - Re-Organising the Credit Function

Rather than relaxing during good times and agitating during bad times, business directors and CEO’s should encourage their managers to look for organisational improvement on an ongoing process, irrespective of the economic and financial situation in the market. Hiring people during booming periods, and firing them when the economy is less favourable, to minimise the operational cost, may be a good sign of overtrading and lack of proper business sustainability.

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Chapter 14 - Incoterms

International business brings along some additional complexity in terms of costs and risk. Who is responsible for the costs of handling and transport of goods, and who covers the risk? There are many possible combinations, and uncertainty may be the result. The correct terms have to be used in the contract between seller and buyer, where a small difference in wording can have a huge impact on the result of a transaction.

Chapter 15 - Minimum Requirements

Current surveys confirm that an insufficiently executed credit management is one of the main reasons for the insolvency of companies. In the reverse consequence it is shown that the credit management contributes actively to the maintenance of the company and therefore has to take a duly status within the corporate management.

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