Credit management is an important function in every organization. Experts defined it as a balancing act between maximizing business revenue against minimizing credit loss. All big and lucrative business deals involve some levels of credit risks.
Businesses, on the other hand, cannot develop or operate without credit. Therefore, to ensure that the company is taking advantage of big and profitable deals and operating well, it must manage its credit properly and efficiently.
Collection companies can help in credit management in Australia. If you want to know more about the collection agencies, you can also check out this source: #1 Mercantile Agency for Consolidated Debt Collection in Australia. Investments in accounts receivable are associated with credit risk. It is impossible to completely eliminate credit losses.
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However, it is possible to minimize credit losses through controls. Practicing and implementing effective credit management will ensure that companies make the right decisions by investing in high-quality receivables with calculated credit losses.
Here, the cost of investing in accounts receivable is weighted against the lost chance of winning. When calculating the cost of investing in accounts receivable, the following types of expenses are taken into account:
1. The cost of losing the loan due to bad debt.
2. Direct costs related to the collection, including salaries, communications, printing, calculations, etc.
3. Accounts receivable or financing payable costs, including interest and opportunity costs.
On the other end of the equation, if you don't intend to invest in accounts receivable that will stop the business, consider possible gain and loss.