Your Credit Questions Answered

Over the past few months, we have had a number of enquiries from prospective clients about credit and how to manage it. Below are just a few of the questions we have had and our answers to them:-

Q. What is credit?

A. Credit comes from the latin word 'credere' which means to trust. It is the ability to obtain goods or services before payment and trusting that payment will be given in the future which allows the person granting the credit to sell more goods.

Q. What is the role of credit in the financial system?

A. There are several different types of credit used within the economy such as trade credit, export credit and consumer credit:

Trade credit is the largest use of credit for a majority of businesses. This is where the customer purchases goods or services from the supplier on account to pay them back at a later date. When the goods are delivered, a set amount of time is given for payment such as 30,60 or 90 days. Without trade credit, the supplier would have a limited access to market their products which would lead to a lack of commercial viability.

Export credit allows UK businesses to reach similar markets overseas. Without this form of credit, overseas businesses would choose local suppliers over international ones which will cause a lack of demand for goods from the UK.

Consumer credit is mainly used to encourage a long term demand for houses, cars, consumer goods and services to the public. Without this, there would be a drastic reduction in demand for these items which would affect the house market and several industries which would result in job losses.

Q. What is meant by bad debt?

A. Bad debt is the amount written off by the business as a loss and is deemed as an expense to the company. This occurs when the business has exhausted all avenues of collection and has been unable to recover the debt.

Q. Is there a difference between credit control and credit management?

A. No, they are one and the same. Credit control and credit management is when companies increase their sales revenue by extending credit to customers who are deemed a good credit risk and denying credit to consumers who aren't a good credit risk as this reduces the company's exposure to bad debt. 

These are just a few questions that were asked. If you would like any of your credit questions answered just comment on this page, email us at info@icreditenforcement.com, tweet us at @ICEPACC or facebook us. We are happy to help!