Credit Policy

Credit policy is a set of guidelines that a business uses to determine how much credit to offer customers, how to evaluate and manage customer credit risk, and how to collect on delinquent accounts. It is a critical component of a company’s overall financial strategy and is designed to protect the company from losses due to bad debt. Credit policies are typically established by the company’s finance department and are based on the company’s risk tolerance, financial resources, and customer base.

History of Credit Policy

The concept of credit policy has been around for centuries. In the early days, merchants would extend credit to customers based on their reputation and trustworthiness. As the economy grew and became more complex, merchants began to develop more formalized credit policies to protect their businesses from losses due to bad debt. In the 20th century, the development of credit scoring systems and the emergence of consumer credit reporting agencies made it easier for businesses to assess the creditworthiness of customers and manage their credit risk.

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Summary

Credit policy is an important part of a company’s financial strategy. It is designed to protect the company from losses due to bad debt by establishing guidelines for how much credit to offer customers, how to evaluate and manage customer credit risk, and how to collect on delinquent accounts. Credit policies are typically established by the company’s finance department and are based on the company’s risk tolerance, financial resources, and customer base. For more information about credit policy, you can visit websites such as Investopedia, Credit Karma, and the Federal Trade Commission.

See Also

• Credit Risk
• Credit Scoring
• Credit Reporting
• Debt Collection
• Credit Card
• Credit Limit
• Interest Rate
• Credit History
• Credit Score
• Credit Card Fraud

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