credit-policy

Vocabulary Word

Definition

Credit policy is a system set up by a company that decides the rules about how to give credit. It includes things like who can get credit, how much they can get, and what happens if they don't pay back.

Examples in Different Contexts

In the banking sector, a 'credit-policy' is a set of guidelines that dictate how a bank extends credit to its customers, including the criteria for loan approval and interest rates. A policy analyst might say, 'Our bank's credit-policy ensures fair and responsible lending by carefully evaluating applicants' creditworthiness.'

Practice Scenarios

Accounting

Scenario:

The number of days' sales in receivables has been consistently high, which is impeding our cash flow. Would it be viable to make our credit terms more stringent?

Response:

That's true. An updated, stringent credit policy can control our receivables and improve our cash flow situation.

Finance

Scenario:

Given the recent increase in loan defaults, I think we should reassess our lending practices. We need to strike a balance between accessibility and risk.

Response:

You're right. Modifying our credit policy could reduce our risk and still ensure lending accessibility.