Credit Planning in Cooperatives

 

Credit Planning

A credit planning is to set out procedures for defining and measuring the credit-risk exposure within the Group and to assess the risk of losses associated with credit extended to customers, financial investments and counter party risks with respect to derivative instruments.

The main aspects of a credit planning are-

1) The terms and conditions on credit,

2) Customer qualification criteria,

3) Procedure for making collections, and

4) Steps to be taken in case of customer delinquency.

Factors affecting Credit Planning

An effective Credit planning should include the following Considerations

·         Objectives of the credit function

·         Opening procedures and obtaining information for new accounts

·         Assessing & evaluating the proposals

·         Terms and conditions

·         Authority levels and responsibilities

·         Invoicing procedures

·         Monitoring borrowing and paying behavior of customer

·         Procedure relating to complaints and disputes

·         Targets, benchmarks, and deadlines for the credit function

·         Defining & collecting of dues, overdue and bad debts

 

Internal and external factors which affect the credit planning

·         Customer’s buying patterns, needs and requests

·         Type of industry

·         Competitors’ offers

·         Type of products or services provided to customers

·         Production process

·         Distribution systems

·         Credit terms from trade suppliers and the bank’s overdraft limits

·         Costs of third parties involved, such as factoring, debt collection agencies, etc

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