PREAMBLE: Businesses worldwide thrives on credit and so where it is only practicable to pay for goods or services on delivery, customers are very quick to opt for the available credit facility, since to do so will enhance their cash flow positions. The practice of credit sales has thus come to be widely accepted and preferred over the traditional cash and carry sales strategy. The issues involved in credit creation are
to ensure that such credits can visibly boost the sales volume and contribution margin (profit) as well as the propensity to manage the credits effectively in order to curtail the attendant incidences of bad debts and other costs associated with credit sales that usually impact negatively on the organizational returns. It is no longer hidden from the experiences of different companies the world over that credit risk management has become a tool that can be utilize to optimize the value of the firm. Thus, credit policies need to be formulated taking cognizance of the procedural perspective of the credit function which involves the adoption of processes that will enable credit managers to monitor credits from the point of initiation to the point when they are collected. If this is done, it will most probably reduce the risk of credit diversion, default payment and profit erosion.
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