|
Advising
Customers of Credit Limits
In the commercial
credit granting community, there is an ongoing debate about whether or
not a creditor should routinely inform customers about their established
credit limits. On one hand, doing so ensures that the customer understands
the limitations imposed by the supplier's credit department. On the other
hand, there are risks associated with doing so including potentially damaging
the goodwill between the new customer and a potential supplier.
Advantages
of presenting the customer with information about the credit limit include:
- The opportunity
to talk to the customer about the company's payment expectations and
the seller's concerns
- The opportunity
to discuss how the credit limit might be increased in the future - and
how soon the credit department will re evaluate its original decision
- The opportunity
to offer suggestions or advice that may help a marginal customer to
become more successful and profitable
- Because
doing so reduces the chances of encountering a potentially embarrassing
situation in which a relatively new customer places an order well in
excess of the credit limit and the creditor must hold it.
Some of
the disadvantages of sharing the credit limit with the customer include
these:
- The customer
may self-regulate their purchases so the credit limit is not exceeded,
even when the creditor might consider releasing additional orders on
open account terms after updating the information contained in the credit
file.
- An applicant
may be offended at whatever credit limit is assigned to the account.
There is simply no way to know how a customer will respond to the assigned
credit limit - no matter how large or small the credit limit might be
- Generally,
it is a no win situation to try to explain how and why the credit limit
was set as it was
- The customer
may incorrectly believe they are unworthy of a larger credit limit even
after they have proven to the satisfaction of the creditor that they
would qualify for a larger credit limit - if asked.
Source:
Michael Dennis, author of "Credit and Collection Handbook" available
at the NACM Bookstore. |
|
