The Battle Between Increasing Sales and Controlling Credit Risk
Large and small organizations alike see a constant battle between sales departments that have quotas to meet, bonuses to earn and credit departments that want to limit exposure.
Accounts receivable departments can only collect what can be collected. Credit managers must therefore be pro-active in ensuring that sales departments act properly when extending credit to customers and that accounts receivable are continually monitored to ensure that collection efforts are maximized and coordinated with sales.
1. Credit Granting Procedures
a. Pre-emptive Options
It is inexcusable that suppliers and unsecured creditors, in general, are the last to become aware that a particular customer is in financial difficulty. By the time unsecured creditors find out, it may already be too late. Pre-emptive steps are necessary to reduce financial exposure. The objective is to know your customer, before they are granted credit privileges.
b. Credit Applications
The credit application should be an introduction of the potential client to the vendor. The objective should be to set answers to questions that will allow for a determination of their credit worthiness.
c. Processing Credit Applications
There are a number of services and information sources that are available to suppliers to check the debt exposure and credit history of a potential customer. Types of information can be grouped into two categories, objective and subjective sources.
Objective Sources Include: Government Agencies, Financial Institutions, Court Records, Land Registry Offices, Superintendent of Bankruptcies
Subjective Sources Include: Trade References, Information Exchanges, Industry Word of Mouth
Periodic updates will help to determine whether a customer’s financial situation has changed for good or worse prior to continuing or advancing their credit facility. Sources of information include Equifax credit reports, Equifax account monitoring, Bank reports, Corporate Searches, Trade reference verification and Security registrations.
Blog by Dan Tocchet
Canada Legal Referral www.canlegal.net