A
mong most challenges facing
persons of all shades from the
lowly business hustlers to multi-
billion commercial drivers is the little
matter of Credit and its deadly impact on
the business journey. Mr. Sam Omukoko,
CEO Metropol Corporation Limited,
gives us a ride in wading through the web
of credit management in this abridged
version of his key note address at
Mombasa Quiznite.
The first part of the talk is a general
introduction to give the marketing
fraternity an overview of credit
management and the crucial role it plays
in the marketing arena to oil commerce
and spur economic growth. The second
part will address the advent of Credit
Bureaus and the role they play in Kenya to
facilitate credit transactions.
Business growth is inextricably related
to the availability of credit where credit
is defined as the ability of a customer to
obtain goods or services before payment,
based on the trust that payment will be
made in the future. This very simple
concept is the cornerstone of modern
business and explains the explosion of
business globally.
Why you give credit is perhaps the basic
question which then spawns the how you
give credit and for what period of time.
When you give credit is also a pertinent
question and that forms the basis of our
discussion as an entire profession called
Credit Management has grown to answer
those simple questions posed.
Credit Management is one of the most
important activities in any company or
economic enterprise engaged in credit
trading. It is the process that ensures
that customers will pay for the products
delivered or the services rendered. It is an
aspect of financial management involving
credit analysis, credit rating, credit
classification, and credit reporting.
In credit transactions you receive value
now on deferred payment terms, this
means getting it now and paying later.
Because there is a difference between
the time you receive value and the time
payment is done, credit introduces two
things that are crucial if you are to succeed
in using credit as a tool of business.
The first thing is time value of money.
Money today and money 30 days from
now don’t have the same value: you find
that in a high inflation environment
money will always loose value over time,
so if you give value for goods now to
receive payment in 30 days or 60 days you
will receive less value and that impacts on
your profitability.
The other thing is that because you are
now relying on a promise to be paid it
introduces an element of probability;
there is now a chance that you either will
be paid or you might not be paid at all,
therefore if you are using credit as a tool
for business these two concepts become
extremely important.
Looking at it from a cash flow point of
view, to realize the value I want means I
must get paid on time. If we have agreed
on payment terms after 30 days then I
must receive the payment after 30 days, if
I receive the payment after 60 days then I
am not getting the value that I projected
when I was selling the goods or services.
Benefits for Credit
In general credit has four key benefits,
starting with the fact that credit pushes
your sales, many of us do not have cash in
hand at all times but we need to consume,
if I have to wait to get cash in order to
buy what I need then it means most of the
time I will be deprived of what I require
but where there is credit I can always get
goods or services and pay later.
The seller is also able to push those goods
to me with an agreement for me to pay
later, they can sell a lot more so credit has
always been an instrument for generating
more sales. If you look at a person who
sells on cash and somebody who sells on
credit, the person on credit can push more
sales if they have capacity to produce.