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Establishing Credit Limits on Newly Formed Companies
Offering open account terms for newly formed companies can result in significant credit risk for the creditor company. Usually, the credit department is not incentivize or encouraged to take big risks relating to extension of credit to new and marginal accounts. Experienced credit professionals know that one of the complaints that they frequently hear in this scenario is that no one is willing to take the first step by offering a new company open account terms. To some extent, this complaint is accurate.
However, it is not because credit professionals refuse to take appropriate risks. Instead, the types of risks that we do accept are expected to take are ones in which we have a high degree of certainty about payment.
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