What is typically assessed during the credit management process?

During the credit management process, assessing customer creditworthiness is crucial for several reasons. This assessment helps organizations evaluate the likelihood that potential customers will repay their debts. It involves reviewing customers' credit histories, financial strength, and payment behavior. This due diligence minimizes the risk of bad debts and defaults, ultimately safeguarding the organization’s financial health.

Understanding a customer’s creditworthiness allows a business to make informed decisions about extending credit terms, setting credit limits, and determining payment methods. By accurately assessing customer creditworthiness, organizations can foster better relationships with reliable customers while avoiding potential losses from unreliable ones. This focus on credit assessment ensures that companies maintain a balanced and healthy accounts receivable aging schedule.