Formulation of a Credit Policy

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Credit policy formulation refers to the process of formulating all the all the credit decisions made by the credit department. The various steps to be taken by the credit department in the formulation and implementation of a sound credit policy are given below:

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Credit Policy Creation

Develop a well-defined credit policy as a top priority for managing the credit procedure.

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Understanding the Objectives

Understand the key objectives and purposes that shape the credit policy and its impact on credit extension to customers or agencies.

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Identifying the Resources

Consider the resources needed for creating the credit policy, including those of the credit department, and address turnaround and response times.

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Credit Decision-Making

Allow flexibility in credit decisions for specific situations, but avoid vague language that can be interpreted differently by credit department members involved in the policy-making process. Formulate the credit policy through decision-making and discussions.