Role of Creditworthiness in Strategic Success
Creditworthiness determines whether the organization will honor or default on its debt obligation based on a lender’s assessment. A lender determines whether they will advance new credit based on the creditworthiness score. Organizations with good credit ratings are not only likely to access credit but also access affordable credit with low interest rates. Organizations need leaders with sound financial management competencies to ensure the creditworthiness of an organization is maintained.
One of the ways an organization can improve its creditworthiness is by maintaining a long credit history. When financial institutions want to determine whether they will advance debt or not, they first check to ensure that an organization has established the tendency to honor its financial obligations (Becchetti & Conzo, 2011). To that end, a longer credit history with corresponding timely repayment bolsters the chances of the organization accessing new debt. Another way to bolster the creditworthiness of an organization is by keeping outstanding loans in check. Most lenders tend to shy away from extending credit to an organization with many current debt obligations (Becchetti & Conzo, 2011). Therefore, an organization should repay small debts as soon as possible and only retain long-term debt accounts to attract new lenders.
It is also worth noting that individual leaders’ creditworthiness plays a role in determining whether a financial institution will extend credit to an organization. This is based on the fact that organizational leaders’ private financial management strategies will be reflected in overall organizational management (Moseley, 2017). To that end, lenders shy away from leaders with poor creditworthiness, irrespective of the organization’s creditworthiness score.
In summary, creditworthiness is important in today’s markets because it determines whether the organization will access credit and at what rates. Some financial strategies may be implemented to bolster the creditworthiness of an organization, including maintaining a long credit history and keeping outstanding loans in check. Organizational leaders should also be aware that their individual creditworthiness affects the organization, hence the need to maintain clean records.
References
Becchetti, L., & Conzo, P. (2011). Enhancing capabilities through credit access: Creditworthiness as a signal of trustworthiness under asymmetric information. Journal of Public Economics, 95(3-4), 265-278.
Moseley III, G. B. (2017). Managing health care business strategy. Jones & Bartlett Learning.
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Evaluate the role of credit worthiness in strategic success. How does this play a role and why is this an important concept in today’s market?
Role of Creditworthiness in Strategic Success
What are ways that creditworthiness can be enhanced by competent strategic financial management? How does the creditworthiness of individual leaders impact the overall organization?
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