Introduction
In any business project, credit lines play a major role in finances deployed for business. Experienced, seasoned and new entrepreneurs and business men are all equally dependent on the financial institutions and banks for completing their capital needs for long term assets as well as for current needs like working capital. It is therefore important to effectively manage the available credit lines to ensure complete access to new lines as and when required.
Step 1
Step #1: Track open credit lines
-For a normal business enterprise there are some standard credit lines open to the undertaking. These credit lines are:
-Long term Institutional Finance for capital needs like Instruments, Real Estate, mechanical assets, installing equipments etc.
-Short term Credits for seasonal needs like temporarily upgrading production capacity or freeing capital blocked in unfinished work etc.
-Short term credits against earnings from exports till realization of revenue.
-Short Term credits for importing specialized Raw Materials or machinery.
-Capital needs drawn from banks mostly in form of Clean Demand Loans.
Through detailed analyses of the financial aspect of your business, figure the open credit lines and keep a track of them.
Step 2
Step# 2: Credit transaction
Credit transaction is not in itself a guarantee from bank. But when a Bank takes Guarantees on behalf of a Business it has a bearing on the overall availability of Credit from that Bank. The Letters of Credit from bank which are opened on the request of a Business lie in the same category. In addition to credit lines, any credit transaction or letter of credit from banks investing in your business must be recorded and tracked.
Step 3
Step#3: Make on time payments
If you have long term loans and multiple credit lines then it is an efficient practice for an entrepreneur to keep a close look on the schedules of repayment and make the payment without defaulting. This not only reflects a good planning on your side but also helps you maintain a good relationship with the bank. You can set aside a part of the total revenues generated by the business after complying with the current liabilities for the purpose of repayment.
Step 4
Step#4: Serve working capital needs
Investing a part of revenues generated by business for buying long term assets is a prudent advice which often implemented in a wrong manner. While making your financial commitments to pay loans or buy assets, you should take care not to lead to situations where Working Capital needs suddenly arise and the business finds itself in a tight spot. If there is any surplus revenue, hold it in reserve at least until the end of current year to keep you safe.
Step 5
Step#5: Prioritize
Establish the order of priority in which to serve the liabilities of your business. Ensuring repayment of credit accumulates in that order is the best way to manage multiple credit lines. For possible future growth of business and earning an outstanding credit rating you will need a well managed Credit structure.
Tip
The main trick to manage multiple credit lines is to order the servicing of the lines of Credit.
Source
www.firehow.com
