Credit Rating and other Marketing Controls

Proper credit rating of the client or dealer is fundamental step in credit control. Credit rating ensures that the credit worthiness of the client or dealer is assessed objectively before the firm proceeds with the risk of extending credit to him.

Aspects covered in Credit Rating of a Dealer:

Business details >

* The dealer’s lines of Business
* Brief history of the businesses of the dealer
* Constitution of the firm
* Associates / sister concerns

Financial strength >

* Capital structure, net worth and shareholding pattern of the dealer firm.
* Analysis of financial performance over the last 3 to 5 years.
* Turnover and profits
* Asset analysis
* Past payment record

Legal dimensions >

* Legal status of the dealer
* Pending litigation/cases, if any relating to trade
* Pending cases, if any, relating to payment of taxes and duties.

The aspects normally evaluated in credit rating of a dealer are shown above.

An analysis of the factors in above points will reveal the soundness of the dealer. Based on such analysis, the firm can categorize the dealers into no risk dealers, low-risk dealers, medium risk dealers and high risk dealers. Such credit rating the firm to handle the dealers appropriately – different dealers can be treated differently in fixing credit limits, interest rates, repayment periods etc. For example, the no-risk dealer can be extended large credit limits; the high risk dealer will not get credit facility unless substantial bank guarantees of collateral security are made available. In this way, with the credit rating of dealers the risk of the firm in extending credit is minimized It assigns a crucial place for managerial discretion in the matter of extension of credit facilities. It also provides analytical information to support the discretion. In the absence of such credit rating, the firm has to either apply a blanket ban on credit or extend credit to everyone without any regard to the safety factor. Neither of these alternatives would be appropriate for practice under competitive business conditions.

Just as credit control, control on price cuts is also very essential. Enthusiastic marketing men often try to push up sales by reducing process. Sometimes price wars among competitive firms become acute and salesmen start selling below costs. Even when there are no price wars, there is usually a strong temptation on the part of salesmen/ sales executives for striking special deals with customers, by offering price cuts, discounts and rebates of various kinds. Usually, firms institute clear procedures in this regard and sales personnel can operate only as per such procedures. Still, conscious control is essential on this matter. Increasing sales by price cuts may be an acceptable marketing strategy for a firm up to a point, but the firm must realize the limits up to which it can go. Whenever sales are sought to be made below the normally fixed price, the marketing control system should be able to sense whether such price cuts will ensure compensating advantages to the firm.

Budgetary control is yet another marketing control device. It is applicable to every function of the business, including marketing. Budgeting in the area of marketing is usually an elaborate exercise, involving sales forecasting , sales budgeting, sales expense budgeting and profit planning.

Budgetary control essentially involves preparation of control statements at specified intervals of time, showing the budgeted figures, the achieved figures and the variance. Review and remedial steps are the other parts of budgetary control. In marketing sales volume, sales expenses and profits are the main aspects to be controlled through the budgetary control device.

Budgetary control pre-supposes awareness of costs and profits associated with each product/territory/customer group. It involves the correct allocation of the total marketing effort in financial terms to each individual product, individual marketing function and individual territory. The analysis should also be: by product, by territory and by function. Analysis done on the above basis would reveal areas of variances and fluctuations. If the variances are wide, the concerned marketing activity must be carefully monitored and controlled in the remaining period.