Credit Policy - An Overview!

Think of a world where you don’t need to pay your suppliers – I mean you don’t need to pay at all!!!

Sounds fascinating, doesn't it. But alas, real world isn't as fascinating.

But wait a minute, we do have a savior that can get us as close as possible to this ideal world. It’s called 'Credit'.

While buyers just can’t get enough of it. Suppliers want to keep it at as much distance as possible.

This savior (I mean “credit” who else were you thinking about :P ) has an ally, called 'Credit Policy'. 
The term credit policy is used when it comes to agreement/contract between two parties for an extended period of time.

Before discussing ahead, let’s get to know other friends of our beloved 'Credit':

• Credit Limits - This is the amount of money suppliers are ready to grant hotels as credit. Both the parties discuss on limits of contract before entering into an agreement.
• Credit Terms – This includes the time specified by the seller to hoteliers for the payment of credit. Early payment wins you discounts, while late-payment gets you penalty.
• Security Deposits – This is the collateral hotels have to submit to suppliers for credit. You need best negotiators to finalize on this!
• Legal Documentation - After defining the policies in detail, suppliers and the hoteliers get into a contract through a legal documentation process. Very important in order to safeguard the business. This also includes legal memos, purchase orders, credit letters, invoices, packing list, delivery receipts, etc. (Some really heavy stuff!)

Here are some points that need to be included in an invoice:

• Invoice number and date
• Buyers and sellers address, Delivery address
• Complete description of the goods or service and along with packing or item numbers.
• The Hotelier's purchase order number of a reference against the job order.
• The amount, quantity, weight and description of goods accordingly.
• The Payment terms along with due date for the payment.
• Signature of the suppliers and the production manager if the goods are being exported from the factory.

Finalizing on credit policy is no child’s play. An in-depth negotiation happens between hotels and suppliers. (Some really heated serious discussions!)

There are no accurate credit policy norms prescribed by law or government. Negotiation is a function of business specifications, cash-flow situations and industry standards. Volume of business, cost involved per transaction and the frequency of delivery of goods are some other important attributes playing an important role in negotiation.

No points for guessing, if you have good past relations (or you are the biggest hotel/supplier in town … kudos to you!) you might get some preferential treatment. But generally, 30, 60 or 90 day credit policies are accepted in this beautiful industry.

If you are a supplier, you will always want to have a credit policy with fewer credit terms. However, for hotels more credit terms means availability of more liquid assets.

Negotiation is the key to credit policy. If the supplier has a reputed market profile and the hotelier is a premium service provider, there are good chances final credit term will be a win-win.

At the end of the day, whatever spick and span you see in hotels, procurement guys and suppliers make that happen. They go through all these technicalities so that guests can enjoy to their fullest. Keep up the good work guys.

Happy Procuring!