Relationship between Credit policies for Coca Cola Company

Introduction

It is vivid that any organization that allows a customer to pay at any other time other than the time of purchase must have a credit policy and terms. A credit policy is a document that dictates when its customers should pay for the goods and services they have ordered at given time and also how easy or challenging it should be for individuals and entities to borrow and how much it should cost. Coca-Cola Company has various policies in regards to the credit given to the customers and vendors. The Company has various types of credit policies but the common ones are the loose or expansive credit policy and also tight or restrictive credit policy. The policies are various relationships which guide their operations. The paper provides the relationship between the credit policies in Coca-Cola Company.

The loose or expansive credit policy

This kind of credit policy operates in various organizations. Coca-Cola as a company uses this kind of credit policy in managing the credit operations. Based on this policy, the organization tends to sell its products to the customers on credit very liberally. The credits are given without much limitation even to whose creditworthiness is not proved, doubtful and are not known. Therefore, as the name state, it has no restrictions in regards of whom to take the credit. This policy has enabled the Company to increase the sale of its products to the customer since they are able to obtain and then pay later.

The Tight or Restrictive credit Policy

The policy has various restrictions which guide the organization and management of credit. The Coca-Cola Company has also used this policy based on their financial information as far as the financial year is concerned. The Company reaches a point where the credit criteria must be guided by the principles inclined to who is legitimately allowed to take credit. The Company becomes selective in their credit extension. They sell on credit only to the customers who have proved to be creditworthiness. It made after the customers have passed the loose credit policy and have become liable to receive products to pay them later.

The relationship between Tight Credit policies to loose credit policy

The Policies have a time aspect or rather the duration for the payment of credit taken by the customers. All the credit policies have a period that is stipulated for the customers beginning from the time the contract was made to its expiry date. According to the Company’s policy, all debts should be collected by the Company upon the agreed time frame. Most of the companies have stipulated that a credit should not last more than 6 months. It is recorded that both the tight and loose have almost the same timeline for which the credit ought to be paid by the customer as a sign reaching out to the expected credit agreement.

Both credit policies serve the purpose of increasing the sales of products for the Company. The agreement made in this contract allows the customers to purchase the products and then pay for them later when they get. Therefore, it is imperative that both credit policies have an impact on the overall rate of the Company’s sales though they offer varying offers. The rate of sales improvement for the tight credit policies is quite lower compared to the sale that is taken through the loose credit policy. Most of the Coca-Cola Company’s clients have the habit of taking the products in credit and later pay after making sales. Therefore, with the loose and tight credit policies, the customers who have identified a market gap can easily get products in order to sell them and later make payment.

Moreover, all the credit policies have a similar origin and background. All the policies will always try to answer a variety of questions such as how the credit is evaluated, handled and also the Company’s terms of sale. These terms and condition provided are valid in both policies to explore the nature of credit variability. Since all the policies are aligned with the rules and regulations which guides the daily operation and management of the credit within the Company.

All the policies have both the merits and demerits based on profit and also loss respectively. It is also imperative that all the credit policies lead to a higher profit in the long runs as their advantages. For examples, the existing loose credit policy allows the customers to purchase the products in varying amounts and pay later. It enables the Company to strike high in relation to the sales and later the overall profit. On the other hand, the tight credit policy allows for credit but under some conditions to only allow the one who had fulfilled their credit commitments or have a good credit record. So, just like the other policy, it creases the overall profit of the Company.

Credit policies effective in eliminating bad debts

According to me, I think credit policies are effective in the elimination of bad debt. In case an organization has a credit policy, the amount it gets on the books related to the payment terms of the Company. This is often overruled if the customers are not paying his debt. Therefore, when the client fails to pay the debt, the credit policy now comes to action in determining the best approach to collect the debt. For example, the Coca-Cola Company always outsources debt collection. They tend to collect their credit if the time factors on the agreement have reached. However, in case the debtor becomes completely unable to pay for the creditor passes, then it is the nature of the Company to write the debt through the bad debt section.

The policies such as tight credit policy allow only the clients who have proved their trust in regards to their past relationship with the Company in regards to credit. All the clients who have a bad history of paying the debts are blocked from accessing the credits of the Company. Therefore, this is able to stop the organization from reaching the bad debt scenario. Moreover, the policies such as collecting the debtor’s materials in case he or she fails to pay for the products. This is able to create fear in the debtors by having the customers who will be loyal and is able to meet the contract. So, the credit policies are important even when the case is taken to court because the organization will be able to defend through their policies as stated in their terms and conditions.

References

Gertler, M., & Kiyotaki, N. (2010). Financial intermediation and credit policy in business cycle analysis. In Handbook of monetary economics (Vol. 3, pp. 547-599). Elsevier.

Trumpy, A. J. (2008). Subject to negotiation: The mechanisms behind co-optation and corporate reform. Social Problems, 55(4), 480-500.

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