What is customer credit?
The customer credit is a commercial agreement between two companies. It concerns the payment perioda longer payment period to a client company to to settle its debt.
In accountingthe customer credit is a debt that a company has incurred:
- Either towards its suppliers, in the case of a delivery of goods.
- Either towards a company, within the framework ofa service provision.
The customer credit allows a company to defer the payment of a delivery of goods or a service delivery.
By taking out a customer creditIf the company is not in a position to pay, it can purchase goods or services without having to pay immediately. However, it undertakes to repay this debt at a later date.
From an accounting perspective, it is the liabilities of the company that is directly impacted. The customer credit being attached to the debts. 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 then debited from current liabilities and credited by thecurrent assets.
In the opposite case, thecurrent assets would be used to grant payment terms to its customers.
How to calculate the customer credit?
The customer credit contracted by a company :
To calculate the customer creditTo calculate the customer credit, the sum of all the debts that the company has towards its customers, the open debts, must be added up.
Here is an example:
- The company “A” finds a commercial agreement with the company “B”, about a delivery of goods, for an amount of 50 000 € TTC. The commercial agreement stipulates a payment term of 60 days.
- Company “A” buys the services of company “C”, for an amount of 7 000 € TTC. 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 € including VAT, which is the total amount of the debts towards companies “Bée” and “C”.
The customer credit granted by a company :
It is also possible to calculate the average duration of a customer credit granted by companies.
To do this, it is necessary to know thecustomer’s outstanding balance on the turnover of the company.
To obtain this ratio, it is necessary to divide the accounts receivable by the sales revenue and multiply the result by the number of days in the year.
Here is an example:
- Company “A” has a turnover of 300,000 euros including VAT during the year 2022. And the amount of its receivables, over the same year, is 70,000 euros.
In this case, the customer credit ratio granted by the company for the year 2022 will be 84.
How to control customer credit?
Each customer credit represents a customer risk: late payment, customer receivablesetc….
delays in payment
can have a real negative impact on your cash flow. On average, in the context of a B2B relationshipIt takes about 50 days for a company to get paid. And this can go up to 60 days in the case of a business relationship with a public company.
It is therefore necessary to control this risk.
It allows you to:
- Create scenarios and configurable models with a multi-channel reminder (Mail, Letters, Materialized mail, telephone, SMS) and a reception status,
- To have a customer vision, from the synthesis to the invoice in 3 clicks,
- Automatically establish a scoring and a cash flow forecast,
- Obtain a personalized vision by user corresponding to your organization chart: reminder operator, salesperson, business unit, financial director, etc.