- Home
- Bankruptcy and Bankruptcy Code
- Business Entities
- Departmental Operations
- Credit Practices
- Legal
- Risk Analysis
- Understanding Accounts Receivable Costs
- Accounts Receivable Forecasting
- Informing Customers of their Credit Limits
- Authorization for Bank to Release Credit Information
- Authorizing Release of Credit Information
- Bank Loans and Bank Credit
- Expediting Bank Reference Requests
- Understanding Banking Relationships
- Bounced Checks; Collecting on Bounced Checks, NSF Checks
- Business Credit; Trade Credit; Open Account Credit Terms
- The Five Cs of Credit Analysis
- Check Acceptance
- Check Kiting
- Classification of Risk; Customer Risk Score
- COD Terms; Slow Pay; High Risk; Risk Mitigation;
- Code of Ethics
- Confidentiality Agreement
- Consumer Credit Granting
- Commercial Credit Application; Necessary Components
- Credit Approval Process
- Credit Associations
- Credit Decision-Making
- Offering Open Account Terms; Credit Extension
- Customer Credit File; Credit File
- Credit Granting Authority
- Credit History and Strategy
- Credit Insurance; Trade Credit Insurance; Export Credit Insurance
- Credit Line or Credit Limit
- Credit Policy Checklist
- Credit References
- Credit Reporting Agencies
- Credit Risk Environment
- Credit Risk Management
- Credit Role/Strategy
- Credit Decision Making: Is it Art or Science?
- Customer Purchase Orders, Errors on POs and their Impact on Collections
- Customer Retention
- Grace Periods and Cash Discounts
- Direct and Indirect Credit Investigations
- Unearned Discounts; Unearned Cash Discounts; Cash Discounts
- Enterprise Resource Planning
- Ethics for the Credit Manager
- Evaluating Financial Health
- Exchange of Credit Information
- Extended Dating Terms
- Credit File Documentation
- Fraud Signs and Prevention
- History of Credit
- Cargo Insurance
- Insurance Brokers and Credit Insurance
- Internet as a Source of Credit Information
- Late Charges
- Minimum First Order Without Credit Investigation
- New Account Checklist
- Non-Disclosure Agreement
- Open Account Sales; Open Account Terms; Extension of Credit on Open Account Terms
- Alternatives to Open Account Terms
- Controlling Credit Risk
- Order Approval; Order Hold; Credit Reviews; Pending Order Review
- Order Controls / Order Approval
- Pro Forma Invoices
- Requesting Financial Information from Customers
- Restrictive Endorsements
- Returned Checks
- Return Merchandise Authorizations
- Root Cause Analysis of Past Due Balances
- Safeguarding Accounts
- Security Agreements; Secured Debts
- Seller's Invoice
- Terms and Conditions
- Terms of Sale
- Terms of Sale: Examples
- Types of Credit: Consumer Credit; Bank Credit; Commercial Credit; B2B; Business to Business
- Written Credit Policy Manual
- Handling Post Audit Claims More Effectively; Post Audit Claims
- Do's and Don'ts of Business to Business Debt Collection, Debt Collection Practices
- Bad Debt Reserves
- Advantages and Disadvantages of Purchasing Credit Insurance
- A Letter of Introduction
- Addressing Chronic Slow Pay Customers
- More about Cash Forecasting
- Streamlining Order Processing
- Collection Practices
- Financial Analysis
- Financing Methods
- International Credit
- Laws and Regulations
- Payment Methods
- Performance Measures
- Security Instruments
- Career Management, and Job Change
- Credit Website Tools
- Upcoming Educational Events
- Credit and Collections Tools and Tips
- Tips on Creating Better Emails
- Generating Effective Credit Correspondence
- Exporting
- Accounting
Controlling Credit Risk
Occasionally a new customer will test a creditor to determine their sensitivity to late payments. It is important that this situation be addressed correctly and quickly. If this is not done, chances are that new customers will delay payment - and this may set the pattern for the all of the customer's future interactions with the creditor company's credit department. Delinquent new customers must:
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Be contacted as soon as possible after they become past due,
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Reminded of the terms of sale,
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Told that the past due balance must be paid in full immediately,
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Should be considered for a credit hold,
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Should have the credit limit re-evaluated and if necessary reduced,
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And the new customer should be told that future delays in payment will result in the decision to extend credit be re-evaluated.
Remember that some customers deliberately and systematically test the creditors to determine just how much it can get away with before the creditor takes action such as placing the accounts on hold, or for collection. It is important to demonstrate competency, resolve and attention to detail early in the business relationship when addressing past due balances, and if a new account's payment pattern does not improve, the credit manager should decide quickly whether the customer's open account terms should be reduced or revoked.
One final thought: If the credit department is unable to bring a new customer's payment pattern back into line quickly chances are that the creditor will not have a satisfactory relationship with the customer and the account should be closed, or at the very least the credit limit and terms should be reduced or shortened.
© 2011. Michael C. Dennis. All Rights Reserved. Michael is the author of "Credit and Collection Handbook."