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- Classification of Risk; Customer Risk Score
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- Confidentiality Agreement
- Consumer Credit Granting
- Commercial Credit Application; Necessary Components
- Credit Approval Process
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- Credit Decision-Making
- Offering Open Account Terms; Credit Extension
- Customer Credit File; Credit File
- Credit Granting Authority
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- Evaluating Financial Health
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- Extended Dating Terms
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- 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
- Order Approval; Order Hold; Credit Reviews; Pending Order Review
- Order Controls / Order Approval
- Pro Forma Invoices
- Requesting Financial Information from Customers
- Restrictive Endorsements
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- 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
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Credit Granting Authority
Anyone with the authority to extend open account credit terms should have extensive experience in credit management, financial analysis, and credit risk mitigation. In most companies, only one or two people in the credit department are given authority to approve open account credit terms and/or to increase credit limits, and to release orders. Individuals with this authority must be assigned a specific dollar limit on his or her credit granting authority-including the credit manager.
Before anyone is given the authority to make credit decisions on behalf of the company, they must be trained or must have proven expertise in the areas of financial analysis and credit-risk management. Employees without proven capabilities are normally introduced into the credit evaluation process gradually and under close supervision.
To control risk, companies often develop a chart of credit granting authority that might look something like this:
Title Limit of Authority
Company President Unlimited
Chief Financial Officer $1,000,000
Controller $500,000
Credit Manager $250,000
Assistant Credit Manager $25,000
Sales Manager $0
When credit granting authority is delegated, it must be made clear that requests or orders that exceed their credit granting authority must be forwarded to the appropriate person for approval and that violation of this basic rule will be grounds for disciplinary action up to and including termination. This should prevent accidental or deliberate violations of the rules established to safeguard the company's investment in accounts receivable.
Copyright 2009 by Michael C. Dennis, author of "1001 Collection Tools and Tips."