UNIVERSITY OF ZIMBABWE

ASSIGNMENT

CREDIT POLICY AND STARDARDS

June 2014

Lecturer:Mr Samuel Gumbe

Student: Rutendo Brian Mawoyo

Question: With reference to your organisation or any that you are familiar with, outline the importance of a well articulated credit policy to the credit function.

Background

Credit is deferred payment and its control is an important feature of business management. In banks clients deposit their money. The bank lends out the money through a credit function. Deposits are collected at say x% and advanced at say x% plus 5% and 5% being the profit of advancing credit. This is how banks operate. Retail shops and wholesalers also sale goods on credit and this generally enables them to achieve higher margins and greater sales. Trade credit generally facilitates trade in the country and internationally. In all these some customers fail to pay back and there have to be effective, economic and efficient ways of recovering debts. Where credit sales or business constitute above 40% of total volume the importance of managing this function well becomes of paramount importance.

Introduction

Banks are in the business of receiving deposits and lending them out. Retailers, manufacturers and wholesalers offer trade credit. This process ties up money and at the same time these organisations have financial obligations to meet hence there has to be a balance. To achieve this balance a well articulated credit policy which will guide staff executing this function should be put in place.The importance of a well articulated credit policy is highlighted by the contend of this document and what the contends seek to address in business. A well articulated credit policy will contain a mission statement , goals and objectives of the organisation, should define