Credit granting

The term "granting credit" covers a range of actions associated with extending credit to a customer. Some companies' credit granting process is simple, while others have a more comprehensive process that may include multiple steps, controls, departments and the like.

Who provides credit in Denmark?

In Denmark, many companies extend credit worth millions of Danish kroner every day.

When a customer walks into a store, orders a craftsman or similar, credit is often granted when the invoice is sent, but payment is not due until later. The period from sending the invoice to payment is called the credit period.

In addition to private companies, banks and other lenders also provide credit to their customers on a daily basis, for example in the form of overdrafts, operating credits or similar.

Why is credit necessary?

There can be many reasons for granting and receiving credit.

Many companies use credit as a form of financing, where the credit is used to purchase goods, for example.

For example, a craftsman can buy building materials on credit, use the materials with a customer, and receive payment for the work including the materials. If the craftsman has a long enough credit period, he can receive the payment from the customer before he has to pay for the building materials in the DIY store.

This type of credit is common in many industries and can have a huge positive effect on the liquidity and cash flow of small and medium-sized businesses. It can even be a competitive advantage in some industries.

The work around credit granting

Providing credit to your customers, whether you're a business or a lender, often requires more work than simply receiving cash payment.

There is always work involved in granting credit, and credit scoring often plays a central role in this process.

The most important thing when granting credit is to provide the right credit to the right customers - those who can pay back.

To ensure that the credit is repaid, it is often necessary to perform credit checks and credit assessments of customers. This may involve checking debt registers such as RKI or the Debtor List, obtaining key figures, accounting information and the like.

The risks of lending credit

A frequently asked question is: "What is the risk of extending credit?" The answer is simple: the risk is that you lose all or part of your outstanding balance.

All credit carries a risk - the risk that the customer will not be able to pay back. The customer's financial situation can change, the customer can go bankrupt or the customer can die. There are many reasons why a credit can default, almost regardless of how many precautions you take.

This is important to keep in mind when granting credit.