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What is Business Credit?

Business credit is the single largest source of business financing by volume, even exceeding bank loans. Business credit should not be confused with consumer credit, credit cards, venture capital, commercial loans or credit unions. In this context, business credit is the credit extended between businesses and the fuel that drives the engine of today's business economy.

For most companies, accounts receivable are the first or second largest asset on their balance sheet. This asset is the lifeline of any company: cash flow. The impact of an account that must be written off due to failure is significant. Not only is inventory, product or services lost, but additional costs are incurred in time.

The ability to manage cash flow is directly linked to the ability to manage risk. As companies struggle to maintain or expand their customer base in these challenging economic times, business risk management becomes the key to success. As the words bankruptcy, workout and business failure become more prevalent in the language of business, the role that credit departments play within every company and the contribution that credit management professionals make on a day-to-day basis have become invaluable in every company's success plan.

Business credit is extended from one business firm to another, for the purpose of acquiring goods that will eventually be resold, or items that will be used to make goods for resale, or to provide services among companies. Without business credit, America's economic system as we know it would not exist. Business credit is, in reality, the capital required to conduct business. Billions of dollars worth of goods and services are transacted daily through the business credit process.

Credit is privilege granted by a creditor to a customer to defer the payment of a debt, to incur debt and defer its payment, or to purchase goods and services and defer payment.

The role of the business credit manager has changed dramatically in the past few years. Sound credit management practices contribute to the overall success of any company. While the roles of a credit professional may vary from company to company, the key job of every credit professional is to manage and mitigate the risk associated with extending business credit and to manage accounts receivable, all while maintaining a competitive edge in a complex, global business environment.