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Credit Granting Authority Anyone who is given the authority to extend open account credit terms should have extensive experience in credit management, financial analysis, and risk management. 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:
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. Source: Michael Dennis, author of "Credit and Collection Handbook" available at the NACM Bookstore. |
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