List of figures Notes on contributors Foreword Introduction PART I: THE CREDIT MANAGEMENT FUNCTION 1

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1 Contents List of figures Notes on contributors Foreword Introduction xi xiii xv xvii PART I: THE CREDIT MANAGEMENT FUNCTION 1 1 Credit past and future 3 Origins; The role of credit and its importance in the economy; Capital and credit; The development of consumer and export credit; Secured and unsecured credit; Information technology; External services; Credit management as a profession; Coping with change and the path forward 2 The financial effects of credit management 19 The cost of credit; Free credit?; The effect of credit on profits; The effect of credit on liquidity; The financing of credit; Cash flow; Measurement of debtors; Cash targets; Planning and budgeting debtors; Summary 3 Credit policy and organization 36 A credit policy; The key features of a credit policy; Credit risk policy; Credit policy for export sales; The functions of a credit department; The role of the credit manager; Reporting structure and organization; The qualities of the credit manager; Credit staff and their training v

2 CREDIT MANAGEMENT HANDBOOK PART II: CREDIT TERMS AND CONDITIONS OF SALE 61 4 Credit terms and conditions of sale 63 Credit terms; The factors affecting credit terms; Conditions of sale; Types of credit terms; Cash discounts; Late payment interest; Progress payments, retentions and consignment accounts; Methods of payment PART III: ASSESSING CREDIT RISK 79 5 Assessing risks in trade credit 81 Credit assessment overview; Marketing and risk assessment; Customer identity types of customer; Trade credit information and its sources; Financial statements; Interpretation of accounts; Summary 6 Credit ratings and risk categories 121 Why have credit ratings?; Calculating credit ratings; Risk categories; Identifying and dealing with high-risk accounts; Bad debt reserves; Effective credit management 7 Predicting corporate insolvency by computer 140 Background; Developing and using a solvency model; Credit management applications 8 Insolvency warning signs 146 Background; Attitude; The three phases of failure; Can it be avoided?; Conclusion PART IV: SALES LEDGER Sales ledger administration 161 Administration and format; Statements; Disputes and queries; Cash matching; Collection aids; Controls 10 Computer systems for credit management 175 System requirements; The sales ledger and customer file vi

3 CONTENTS PART V: CASH COLLECTION Collecting trade debts 189 The front end; Collection attitudes; Days sales outstanding (DSO) and cash targets; Incentives; Computer aids to collection; Methods; The future 12 Telephone collection 226 The telephone; Staff; Making the call; Customer excuses; Win-win; Conclusion 13 Using collection agencies 246 The collection agency; The right agency?; Choosing the agency; The CSA 14 Planning, measuring and reporting debtors 251 The need to plan debtors and then to report the results; The powerful tool the DSO ratio; Budgets and reports; Measurable items PART VI: CREDIT INSURANCE Home trade credit insurance 277 Introduction; Features of credit insurance policies; When does cover commence?; Benefits of credit insurance; Importance of brokers; Captives and mutuals; Domestic credit insurers; Further reading; Useful addresses 16 Export credit insurance 295 Introduction; Differences between domestic and export credit insurance; Country (political) risks; Commercial (customer) risks; Pre-shipment cover: suitable for companies making specialist goods to order and not easily resold elsewhere; Level of indemnity; Credit insurance compared to confirmed letters of credit; Sources of export cover; The UK s governmentsupported export credit agency ECGD and medium-term credit; Further reading; Useful addresses vii

4 CREDIT MANAGEMENT HANDBOOK PART VII: EXPORT CREDIT AND FINANCE Export credit and collections 307 Exporting is expensive so manage the expense!; Time and cost in export payments; Effective conditions of sale; Agents, distributors and subsidiaries; Export documents; Payment terms; Countertrade; Tender and performance bonds; Getting funds transferred from abroad; Checking the risk of payment delays; Information on country (political) risks; Information on customer risks; Evaluating customer risks; Codifying information; Collecting overdues an overview; A systematic approach; A word about foreign currency; Checklist: to speed export cash; The future for export collections; Think international 18 Export finance 341 The need for special money for exports; Enhanced overdraft; Bill advances and negotiation; Export finance banks; Finance from letters of credit; ECGDbacked finance: medium-term credit; The international consensus 19 Foreign exchange 350 The credit manager and foreign currency; The history of foreign exchange; Present day foreign exchange markets; Dealing operations; Press charts of foreign currency rates; Exchange risks and how to cover them; The European Monetary System and ECU, leading to the Euro; The UK and the Euro; Summary; Glossary of foreign exchange terms PART VIII: CONSUMER CREDIT Retail credit management 369 Securing finance for the credit operation; Relationship with finance houses; Types of credit available; Credit policy; Controlling the risk; Collecting accounts; Collection letters by computer; Management information and reports 21 Consumer credit law 396 Peter C Coupe Introduction; Development of consumer credit law; The Consumer Credit Act; The Data Protection Act 1998; Other laws; Codes of practice; Conclusion and further reading viii

5 CONTENTS PART IX: COMMERCIAL CREDIT LAW Legal action for debt recovery 419 Robert Addlestone and Gareth Allen Pre-action steps; Alternative dispute resolution (ADR); Information needed to commence proceedings; Issuing the claim form; Completing the form; Service of the claim form; The next stage; Defended actions; Enforcement 23 Insolvency procedures 449 Malcolm Cork Introduction; Personal insolvency; Partnerships; Corporate insolvency; Creditors voluntary liquidation; Members voluntary liquidation; Receivership; Company voluntary arrangement; Administration order; Informal schemes PART X: CREDIT SERVICES Invoice financing 471 Ted Ettershank What s the difference between factoring and invoice discounting?; How does invoice financing work?; How does factoring work?; How does invoice discounting vary from factoring?; When to use factoring; Points to be aware of when considering invoice financing; Choosing a factor 25 Credit cards 475 Peter C Coupe Introduction; What are credit cards?; Early development in the USA; UK market development; Credit and debit card spending and borrowing; The cost of credit; The cost of payments; The cost of promoting cards; Fraud and bad debt; Chips and electronic purse 26 Sales finance and leasing 492 Introduction to sales finance; Benefits of sales finance to buyer and seller; Types of sales finance; Funding the credit advanced; Which product is best for what?; Summary; Sources of information; Further reading Appendix 515 Membership organizations for credit management personnel; Training and consultancy services for credit management; Sources of credit information; Useful addresses; Useful credit publications; Query management systems; The better payment practice group; Credit policy and procedures; Suggested contents for a credit manual Index 541 ix