What Does the Credit Department Do? – Definition, Need, Goals
Credit Department Definition
Credit Department company needs to start departmentalizing when it begins to grow or has grown.
And the credit department is one of the first departments to become needed the revenue grows, and credit extends to clients, new and old.
Also, the types of transactions specific to our company determine how rigorous our company needs to develop its department.
Why Does the Company Need the Credit Department?
- Many start-ups and small-medium businesses do not “need” the credit department.
- In these cases, credit management tasks it’s frequently assigned to one person within the business, generally the CFO and Controller. And the job is to keep the accounts receivables low.
- As the business grows and revenue increases, collections, and credit management are hopeful become too much for one person to handle efficiently.
- When it occurs, the company needs to create a credit department. And it departments work in conjunction with the sales department.
- And ensure that the sales extended on credit are going to creditworthy customers who will pay on time.
- It is often friction between these two departments – sales want the sale no matter what, and credit departments are task with only allowing sales that will end up existing pay.
- And good CFO and controller take these departments to work together harmoniously.
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What are the Goals Of the Credit Departments?
- There are a few essential goals that every credit department must take within a company structure.
- The obvious few are the reduction of bad debt and the increase of timely payments by new and current customers. And lousy debt plagues all companies from large to small.
- There are several steps that the credit department needs to implement with the sales staff to reduce the occurrence of bad debt.
- Securing the personal guarantee or letters of credit and sending and filing preliminary notices and liens are just a few tools. That construction industry business can use to mitigate the chance for bad debt.
- The credit department’s other goals include stream-lined payment and billing processes making it easier for clients to pay and pay in a timely. It can be helped by automating client reminders to pay when the debt is the past due.
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