An Evaluation of the Credit Management System of an Enterprise

Abstract

The company under this case study is facing the problem of cash operating cycle and higher debt level which eventually increases the days’ sales outstanding. Due to a high level of account receivables, the company incurs administrative expenditures and opportunity costs. Therefore, it is required to reduce the debt level of the company to decrease the loss of opportunity cost and administrative expenditure. We find that the implementation of a robust credit management policy will improve the quality of sales of the company and will eventually reduce the bad debts and days’ sales outstanding (DSO). The appointment of a credit manager improves the relations of the company with the regional office, subsidiary companies, and customers of the company. A robust credit policy helps credit managers involve employees of the organisation in credit management. The receivable-based commission policy encourages salespeople to focus on viable projects, leading to a low level of DSO.