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Unsecured Creditors An unsecured creditor is a company that extended open account credit terms [or lent money] to a company or individual without requiring some form of collateral from the buyer/borrower/debtor as security. In most industries, business is conducted between buyer and seller on open account terms, with most sellers in the position of general unsecured trade creditors. This puts most trade creditors in a relatively high risk position when compared to a secured creditor. Unsecured creditors should update their credit files regularly to determine which customers remain creditworthy, which accounts have experienced problems and need to be monitored more closely, and which customers represent an unacceptable credit risk necessitating a decision by the credit department to withdraw the customer's open account terms. In addition to routine monitoring, accounts that break payment commitments, take unsubstantiated deductions, or delay payment should be reviewed carefully to determine if the decision to offer open account credit terms to them remains appropriate. Source: Michael Dennis, author of "Credit and Collection Handbook" available at the NACM Bookstore. |
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