Customer credit

Customer credit

What is customer credit?

Visit customer credit is a commercial agreement between two companies. It concerns the payment periodgranted to a business customer to settle its debt.

At accountingthe customer credit is a debt incurred by a company:

• Either to its suppliers, in the case of a delivery of goods.
• Or to a company, as part of aservice provision.

Visit customer credit allows a company to defer payment for the delivery of a delivery of goods or a service.

By taking out a customer creditIn the case of a debt, the company can purchase goods or services without having to pay immediately. However, it undertakes to repay the debt at a later date.

In accounting terms, this is the liabilities which is directly impacted. Visit customer credit which is included in liabilities. These correspond to the total amount of outstanding amounts by the company.

When the company repays its debt, the amount of the customer credit is debited from current liabilities. current liabilities and credited tocurrent assets.

In the opposite casecurrent assets would be used to extend payment terms to customers.

How do you calculate customer credit?

Customer credit contracted by a company :

To calculate customer creditis the sum of all outstanding debts owed by the company to its customers.

Here’s an example:

• Company “A” reaches a commercial agreement with company “B” for the supply of goods worth €50,000 including VAT. The commercial agreement stipulates a payment term of 60 days.
• Company “A” purchases the services of company “C”, for €7,000 including VAT. Here again, the commercial agreement stipulates a payment term of 60 days.

In this case, the customer credit of company “A” is equal to €57,000 inc. VAT, i.e. the total amount owed to companies “Bée” and “C”.

Customer credit granted by a company :

It is also possible to calculate the average duration of customer credit granted by companies.

To do this, you need to know theoutstanding customer balance on sales sales.

To obtain this ratio, it is necessary to divide the accounts receivable by sales and multiply by the number of days in the year.

Here’s an example:

• Company “A” generated sales of 300,000 euros (incl. VAT) in 2022. Its trade receivables for the same year amount to 70,000 euros.

In this case, the customer credit ratio granted by the company in 2022 will be 84.

How do you manage customer credit?

Every customer credit represents a customer risk: late payment, customer receivablesetc….

Visit late payments can have a real negative impact on your cash flow. On average, for a B2B relationshipIt takes around 50 days for a company to receive payment. And this can rise to 60 days in the case of a commercial relationship with a public company.

It is therefore necessary to control this risk.

The collection software can be an excellent way of automating the work of reminding customers and customizing their customer relations. Aston AI takes on the main functions of the credit management.

In particular, it allows you to :

• Create configurable scenarios and templates with multi-channel reminders (mail, letters, materialized mail, telephone, SMS) and reception status,
• A customer view, from summary to invoice, in just 3 clicks,
• Automatically establish a scoring and a cash flow forecast,
• Get a personalized view by user corresponding to your organization chart: dunning operator, salesperson, business unit, CFO, etc.