Some contact usually occurs between an individual and a lender prior to a credit agreement being entered into – via promotional activity or an enquiry from the individual. However, the relationship proper only begins at the recruitment phase, when a lender receives a credit application, decides to accept it, and a credit agreement is signed by the customer. The lender then creates some form of account record to hold information about the current and historic status of the agreement. The account record will be used as the basis of the account management phase of the lifecycle as repayments are made, further credit advanced and other products and services are marketed to the customer. For some small lenders account records may be paper based, but for all major credit granting institutions account records will be maintained within some sort of computerized system. If a customer breaches the terms of the agreement, causing their account to becoming delinquent, collections action will be taken in an attempt to nurse the account back to a healthy up-to-date status. If this
fails, the account enters debt recovery, where the objective is to recover as much of the outstanding debt as possible before terminating the agreement.
Figure 1: The credit lifecycle
The life of a credit product ends in one of two ways. Either the agreement ends naturally when all outstanding debt has been repaid and the account is closed, or if collections and debt recovery action fail to bring a delinquent account back into line, the outstanding debt is written-off or sold to a third party debt collector. Figure 1 shows that there are four major areas of credit management that a credit operation must deal with; recruitment of new customers, account management, collections and debt recovery. Each of these are discussed in turn in the next four sections. In the fifth and final section the roles played by different organizational functions in managing credit agreements across the credit lifecycle are discussed