Credit File Updates

The department manager should establish clear rules relating to how frequently customer files should be reviewed and updated. In some instances, limited budgets constrain the credit department from performing updates as frequently as they would like. Nevertheless, the goal of every department should be to review each active account at least once each year.

Of course, there are exceptions to this rule but the exceptions tend to shorten the review cycle time. For example, if a customer becomes seriously past due, then it would be appropriate to update the credit file before deciding whether or not to continue to extend open account terms to that once delinquent customer.  If you are forced to prioritize or limit the number of reviews performed on customer accounts, consider limiting your updates or reviews to:

• New accounts,
• Accounts that have become severely delinquent and
• Customers with your largest open account balances.

This way, you will be mitigating to the extent possible bad debt losses and serious delinquencies despite the constraints placed on credit department. In certain industries, updating credit files every twelve months is sufficient.  In more volatile situations, having information that was obtained within the last six months is more appropriate.  Often, the frequency of credit file updates is dictated by a variety of factors including but not limited to the manpower limitations in the credit department as well as the budget allocated for expenses such as credit reports.

Copyright 2010 by Michael C. Dennis.  All Rights Reserved