The Fundamentals Of Credit Management

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Borrowing finance has become a lot more common nowadays, with clothing retailers even offering a buy now, pay later scheme and businesses are making use of a merchant cash advance. However, managing this credit is just as important. Some companies are finding it hard to procure repayments from clients and struggle to know who’s safe to lend to. To make sure you have a handle on your credit management, keep reading and discover its fundamentals.

Credit History And Score

When deciding to lend, it’s essential that their credit history is checked thoroughly. Ideally, you want them to have a high credit rating and their report should demonstrate that they’re able to make repayments to other creditors. If their credit score isn’t as high as it could be, it’s a good idea to examine their report to see why. This will allow you to clearly see if they’re too risky to lend to and whether or not they’ll be able to keep up with their repayments.

Affordability

The next step is to look at their affordability. Their credit score may not tell the full story, so it’s crucial you assess this as well. They might have a great credit score, so on paper they look like a good borrower, but they could have recently lost their job and won’t have any means to pay back the finance. This will not only set them up for failure, but it will make it impossible for you to manage your credit effectively. Don’t let a shining credit report fool you, so ensure you request a full view of their affordability.

Guarantees And Collateral

If you request a guarantee or collateral from your borrowers, this can sometimes help keep them on track and allow you to keep on top of your credit. You might prefer to have these as a safety net, as it could mean you don’t lose out if you don’t receive the payments when necessary.

Terms And Conditions

You want to make sure that your terms and conditions are easily available and understood so that if a payment is failed to be made, you can follow your procedure and be well within your rights to. Try making your conditions as clear as possible so the borrower can agree to them having understood them correctly. If you don’t, you could be in for problems should someone complain. It’s your duty as a lender to ensure that you’re crystal clear on what you expect from the borrower and removing any confusion can be more beneficial to your credit management.

Reviews And Reminders

Circumstances always change, so after your agreed term is up, you might want to review the credit someone has with you. This way you can make any changes necessary and, in some cases, increase payments. In order to make sure you receive your payments back on time, make sure to send regular reminders to the borrower so that they don’t forget. Forgetting to make a payment is one of the most common reasons why a payment isn’t made, so try your best to eliminate this from happening.

Credit management is all about calculating the risk of lending and taking your return into consideration. Make sure you thoroughly analyse an application before approving it and don’t let missed payments become a regular occurrence if you truly want to manage your credit well.

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