Credit- What That Really Means
Posted on February 6, 2008
Filed Under Uncategorized
Credit is the resource provisioning by one party to another party. The second party is not repaying in full and thereby generating a debt and arranges to pay at a later date. The first party is called a creditor or lender. The second party is called the debtor or borrower. The movement of fund is normally dependent on credit which in turn is dependent on the creditworthiness of the party who is taking responsibility of the fund.
In commercial trade, term credit refers to the approval for delayed payments of the purchased goods. Very often credit facility is not approved or granted to persons or company who has financial difficulty or instability. Sometimes, companies offer credit facilities as a part of marketing strategy and also as a part of the terms of purchase agreement. Few organizations employ a credit manager that offer credit facilities to the customer. Credit risk is the risk of loss due to a debtor’s nonpayment of a loan taken.and interest accrued thereof. However, sophisticated programmes have been developed and used to analyse and manage credit risk. Companies started maintaining credit risk department whose job is to assess the financial position of their customers and offer credit or refuse the same. Companies normally have in-house programme to avoid, reduce or transfer credit risk.
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