Credit
Credit: a word that, depending on the context in which it is used, can have several meanings and uses. It can mean confidence and act of provide a certain value for a third party by a promise of receiving such value in the future.
Credit can represent, in a financial institution, the action of making values available for customer in exchange of a future payment.
The credit is present in every-day-life, in the purchase/acquisition of any good that is not paid on demand, characterizing this act as a credit operation.
Thus, as a business instrument, credit can be defined as the following:
| • | In business |
The credit makes it easier to sell goods to merchants, allowing customers to buy them and pay in installments. Some companies can obtain a better financial result (increase with the sale of goods) than the operating result (increase with sale of goods).
| • | In the market |
As in the business, credit makes it easier to buy industrial products, increasing the number of potential buyers.
| • | In Banks |
It is one of the \"tips\" of the bank's business, which is the financial intermediation. The bank captures money with customers who have funds available and sends them to fund applicants. The bank's profit is obtained with the difference between what it received from the applicant and how much it pays the investor.
Credit Cycle
| 1. | The beginning of the cycle is the planning of credits and risks that the establishment will undertake. |
| 2. | Then, the file and the granting of limits to customers are analyzed. |
| 3. | Next, the sales are made on the current credit policy. |
| 4. | Lastly, there is a constant need of credit maintenance (measuring risk), in a way to avoid very high collection portfolios. |