Order Approval

In order to properly manage risk, the credit department must be prepared to review and manually approve as many orders as are required. Some people might consider this process a waste of time, especially since in the vast majority of cases pending orders are approved and released. However, credit approval is an essential link in the chain that results in fewer bad debt losses and fewer delinquent accounts. Therefore, any attempt by the credit manager, the sales department, the operations department, or any other entity to artificially limit the number of orders that the credit department reviews and approves will tend to reduce the effectiveness of the credit department's risk management role.

If this process results in a large number of orders that require credit review and approval, then it is imperative that the credit department makes the review and approval of pending orders its highest priorities. Otherwise, pressure will build that may result in a decision that the credit department must "somehow" reduce the number of orders it reviews. If this occurs (if the credit department must relax its criteria for order referral) this will reduce the control the credit department has and will result in increased risk.

Source: Michael Dennis, author of "Credit and Collection Handbook" available at the NACM Bookstore.