Credit Management: Conventional And Islamic Essay


1. Major challenges that business organisations face in developing a sound credit policy within a competitive business environment.
2. Two ways that technology can be utilize to improve credit management.


1. Credit policy plays the key role in terms of enabling a business organisation to operate its business proceedings smoothly as well as effectively. Chiefly, policies are to make in order to maintain a systematic procedure that ensures smooth flowing of business activities. Similarly, credit policy is essential for a business organisation in terms of preventing confusions and misconstructions at the same time. However, there are major challenges that organisations often face in developing a sound credit policy within an aggressive competitive market.

Balancing with other competitors – It is widely tacit fact that different business organisations have different set of credit policies. Moreover, there are possibilities those effective and profitable business organisations might follows a credit policy that is convenient to the buyers and easy for them to make repayment (Abu Hussain and Al-Ajmi 2012). For example, organisations that sells and manufactures electronic appliances has a easy and convenient credit policy as their sales rate flows higher to average around the year. On the other hand, they follows proficient credit management techniques such as use of technology such e-invoice statement and electronic payments. Thus, such electronic appliance-manufacturing firms are confident enough in acquisition of credits from their buyers and they have an effective credit management procedure (Moffett, Stonehill and Eiteman 2017).

Consumer risk – Consumers has a diverse nature in terms of conduct as well as perception. They are the end users of any product or service that any business organisations particularly offer to them. Concerning to such fact, there are certain consumer who behaves negatively and does not bother about making the re-payment of their dues. This creates a challenging environment for the credit managers while developing a definite credit policy for that matter. Thereby, since the negative behaviors of such consumers augment constant risks of loss, it creates a big challenge for the organisations to draft an effective credit policy. However, on the other hand, organizations cannot be so rigid to every consumer by making assumption of their behavioral prospects, for that aspect, they offer credits to consumers in order to grow business and enhance profit maximization motives (Kruppa et al. 2013). For instance, in banking sector customers often makes negligence to re-pay the loans due in their account.

Market conditions – Market conditions is another challenge that business organisations come across while developing credit policies. It is of obvious understanding that market conditions fluctuates from time to time. There are possibilities that the sales rate may go higher when the demand of product rises comparatively high (Van Deventer, Imai and Mesler 2013). For example - During summer seasons, the demand of air conditioners rises comparatively high as compared to the rest of the seasons. In order to meet the demand and with a motive to earn profit, companies need to offer credit to satisfy its customers positively, if not done there would massive loss of image as well as decline in firm’s efficiency level. Considering such fact, identifying the market condition and proceed forward with strategic steps to manage credits would be effective and that would assist in cater positive outcome (Moti et al. 2012). Hence, organisations face challenge to develop an effective credit policy concerning the market condition that affects the development of credit policy unconstructively.

2. In this modern era where technology plays the crucial role in enhancing life constantly, it has created several aspects easier to deal with. Considering such fact, credit management’s efficiency has experienced massive augmentation in terms of catered effectiveness.

Big data analytics – Credit managers often face challenges in creating a database of creditors as well as following up the debts from suppliers and buyers. On the other hand, it becomes harder to store critical and important information of the debtors. This creates issues in analysing the pending payments from the database that has been stored in big data as well as it helps in scrutinizing the risk assessment process effectively. Yet, with the assistance of big data analytics, credit management gets easier in terms of risk assessment and storing vast amount of critical data (Gandomi and Haider 2015). Moreover, with the latest trends of technology and utilization of this method has enabled several business organisations to operate proficiently with minimization of errors as well as loss.

Tailored software – It is of clear understanding that every organisation has different sort of business and requires different type of software that the developers customizes them as per the organizational needs. Thereby, designing effective credit management software that would cover every requirement of the organization’s proceedings would provide immense assistance to keep a track on the financial events proactively. There are many advantages of using the tailored software or the customer software. It can be easily designed to specifically meet the user’s needs. it saves the company from the expense of buying another piece of software. Rather this software does everything that the company needs to do in order to manage the credit efficiently. It is also very easy to make changes or any modifications and the process of making these changes is easier in comparison to the other standard software. This software contains only the relevant parts that the users need and there are also no irrelevant parts that might otherwise confuse them. Another important aspect is that the customized software or the tailored software can be used by the companies as per their particular needs. This makes it very which user friendly and helpful. For example, an application developed for JPMorgan Company will be used particularly by that department only. It also increases the safety of the company. It would accurately concerns about the buyer’s transactional records, amount outstanding, accounts receivables; periodic cash flows and so on (Siddiqi 2012). This method been considered as an effective way to manage credits of a business organisation efficiently and has generated win-win situation in maintaining relationships with clients and ensured smooth cash flows positively.


Abu Hussain, H. and Al-Ajmi, J., 2012. Risk management practices of conventional and Islamic banks in Bahrain. The Journal of Risk Finance, 13(3), pp.215-239.

Gandomi, A. and Haider, M., 2015. Beyond the hype: Big data concepts, methods, and analytics. International Journal of Information Management, 35(2), pp.137-144.

He, G., Lu, Y., Mol, A.P. and Beckers, T., 2012. Changes and challenges: China's environmental management in transition. Environmental Development, 3, pp.25-38.

Kruppa, J., Schwarz, A., Arminger, G. and Ziegler, A., 2013. Consumer credit risk: Individual probability estimates using machine learning. Expert Systems with Applications, 40(13), pp.5125-5131.

Moffett, M.H., Stonehill, A.I. and Eiteman, D.K., 2017. Fundamentals of multinational finance. Pearson.

Moti, H.O., Masinde, J.S., Mugenda, N.G. and Sindani, M.N., 2012. Effectiveness of credit management system on loan performance: Empirical evidence from micro finance sector in Kenya. International Journal of Business, Humanities and Technology, 2(6), pp.99-108.

Siddiqi, N., 2012. Credit risk scorecards: developing and implementing intelligent credit scoring (Vol. 3). John Wiley & Sons.

Van Deventer, D.R., Imai, K. and Mesler, M., 2013. Advanced financial risk management: tools and techniques for integrated credit risk and interest rate risk management. John Wiley & Sons.

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