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Handling Difficult Credit Applicants
Some companies know their credit history is spotty, and they may be reluctant to provide information to potential creditors. Sometimes, these customers take a passive approach by simply ignoring the creditor's requests for bank and trade references or financial statements. Other applicants believe that the best defense is a good offense and take an aggressive approach to a creditor's routine requests for information. For example, they may complain to your salesperson or to sales management when asked to provide routine information, or when asked for additional information when the data provided initially fails to generate sufficient positive information to approve the payment terms and credit limit they require. Their main thrust of their complaint will be that your department is out of control and demanding information that it does not need.
Threats from applicants to take their business elsewhere in response to routine inquiry should be taken seriously. However, credit professionals cannot lose sight of their responsibility to properly manage credit risk. If possible, alternatives should be suggested that preserves goodwill with the applicant company. Options to consider include:
- Making partial shipments;
- Offering shorter terms;
- Requesting personal guarantees;
- Accepting post dated checks;
- Accepting a pledge of collateral from the applicant;
- Getting credit insurance to cover the account;
- Factoring the receivable (without recourse)
If an applicant refuses to provide the information necessary for the credit manager to make an informed decision, open account terms should not be offered. However, rather than simply refusing to sell to the applicant, an experienced credit professional will offer alternatives including C.O.D. terms, or terms of Cash in Advance.
As a general rule, the more unreasonable an applicant is in dealing with the credit department, the more cautious the credit manager should be about offering open account terms and the more closely he or she should examine the risk of doing business with the applicant.
© 2010 by Michael C. Dennis. All Rights Reserved. Mr. Dennis is an author and business consultant. He can be reached with questions, comments or inquiries at mcdennis13@yahoo.com